In August 2015 investor sentiment shifted against the Chinese yuan. Investors sold the yuan and bought dollars, as financial capital flowed out of China, seeking better rates of return in other countries. What actions did China take in response to this situation?
A. China sold the yuan to encourage further depreciation in an attempt to improve its trade deficit.
B. China used $1 trillion of its foreign exchange reserves to purchase the yuan in an attempt to prevent further devaluation and tightened capital controls on financial outflows.
C. China's monetary authority sold the yuan in an attempt to prevent further devaluation and raised interest rates to stem the outflow of foreign capital.
D. China loosened capital controls to encourage foreign investment into the Chinese economy.
Answer: B
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