With fixed exchange rates,assume that the home currency becomes overvalued.To maintain the fixed exchange rate,the home country's central bank must
A) purchase the currency,and as a result it loses international reserves
B) purchase the currency,and as a result it gains international reserves
C) sell the currency,and as a result it loses international reserves
D) sell the currency,and as a result it gains international reserves

Question

Quizplus · Accepted Answer

When the home currency becomes overvalued, the central bank must intervene to maintain the fixed exchange rate. To do this, it must purchase the home currency, which will lead to a loss of international reserves.

With Fixed Exchange Rates,assume That the Home Currency Becomes Overvalued