With fixed exchange rates, assume that the home currency becomes undervalued-that is, above its par value when expressed as the home currency price of the foreign currency.Other things equal, to maintain the fixed exchange rate the home country's central bank must
A) sell the home currency and purchase foreign currencies.
B) sell the home currency and sell foreign currencies.
C) purchase the home currency and sell foreign currencies.
D) purchase the home currency and purchase foreign currencies.

Question

Quizplus · Accepted Answer

To maintain a fixed exchange rate when the home currency is undervalued, the central bank must purchase the home currency and sell foreign currencies to increase the demand for the home currency and restore its value to the par level.

With Fixed Exchange Rates, Assume That the Home Currency Becomes