The Moroccan monetary authority is using a heavily managed float to keep the dirham at $0.12 per dirham. Under current foreign exchange market conditions, nonofficial supply and demand would clear at $0.15 per dirham.

1. Using official intervention, what does the Moroccan monetary authority have to do to keep the exchange rate at $0.12 per dirham? Please show the market for foreign exchange of the dirham with the current market conditions and the fixed target rate shown.
2. If private investors and speculators believe that the $0.12 per dirham exchange rate is not sustainable, and the exchange rate should be higher ($0.15 per dirham), what actions are they likely to take? (6 points)

Answer rating: 100% (QA)

To keep the exchange rate at 012 per dirham the Moroccan monetary authority will need to intervene i... View the full answer