how are fixed exchange rates managed

Question 1

what is needed for a fixed exchange rate to work

Answer 1

-governemtn or central bank needs domestic and foreign currency reserves

Question 2

what does governemnt do if there is fear the fixed exchange rate will rise

Answer 2

-if pound is overvalued, needs to sell pound and domestic currency reserves and buy foreign currency
-increases supply of pound to return
-shifts supply to the right

Question 3

what does governemnt do if there is fear the fixed exchange rate will fall

Answer 3

-if pound is undervalued, needs to sell foreign currency and buy domestic currency
-shifts demand to right

Question 4

graph of floating and fixed exchange rate

Answer 4

-price in currency of one, quantity of currency x
supply and demand