The Fed can change the federal funds rate by issuing an order, but it cannot change the discount rate this way

In the above figure, suppose the demand for dollars temporarily increases so that the demand curve shifts to D1. To maintain the target exchange rate, the Fed

A) can sell dollars. B) can buy dollars. C) must violate interest rate parity but not purchasing power parity. D) cannot maintain the target exchange rate.

If nominal exchange rates do not change, an increase in the U.S. price level relative to the foreign price level represents a real appreciation of the dollar. However, if nominal exchange rates can change, is an increase in U.S. inflation relative to foreign inflation likely to cause appreciation of the dollar in the short run?

What will be an ideal response?