The Moroccan monetary authority is using a heavily managed float to keep the dirham at U.S.$0.12 per dirham. Under current foreign exchange market conditions, nonofficial supply and demand would clear at U.S.$0.15 per dirham.
a. Using official intervention, what does the Moroccan monetary authority have to do to keep the exchange rate at U.S.$0.12 per dirham?
b. If the monetary authority believes that this is a temporary disequilibrium, what does the authority expect to happen soon?
c. If private investors and speculators believe that this is a fundamental disequilibrium, what actions are they likely to take?