The Moroccan monetary authority is using a heavily managed float to keep the dir
ID: 1211267 • Letter: T
Question
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.
a) Using official intervention, what does the Moroccan monetary authority have to do to keep the exchange rate at $0.15 per dirham?
b) 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?
Explanation / Answer
they need to depreciate their currency value from $0.12 to $0.15, then only their imports and exports can zoom.
b. if the investors thinks the exchange rate of Dirham is higher, then they interested to sell this currency at lower levels if possible and buy dollars with higher cost. if it is not possible, they do transactions with other currencies but not with dihrams.