Under a system of fixed exchange rates,if the exchange rate of a country is undervalued,then its central bank's effort to prevent the currency from ______ will lead to a (an) ______.
A) depreciating; increase in international reserves
B) depreciating; decrease in international reserves
C) appreciating; increase in international reserves
D) appreciating; decrease in international reserves

Question

Quizplus · Accepted Answer

If the exchange rate of a country is undervalued, its central bank's effort to prevent the currency from depreciating will involve buying up its own currency, which will increase demand and drive up the value of the currency. This will result in an appreciation of the currency and an increase in international reserves.

Under a System of Fixed Exchange Rates,if the Exchange Rate