With fixed exchange rates,assume that the home currency becomes undervalued,that is,above its par value.To maintain the fixed exchange rate,the home country's central bank must
A) sell the home currency and purchasing 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

When the home currency becomes undervalued, it means that it is trading below its fixed exchange rate. To maintain the fixed exchange rate, the central bank must sell the home currency and purchase foreign currencies, thereby increasing demand for the home currency and lowering the supply, which will increase the exchange rate and bring it back to its par value.

With Fixed Exchange Rates,assume That the Home Currency Becomes Undervalued,that