Under a system of fixed exchange rates,if the international reserves of a country's central bank become exhausted,it cannot keep its currency
A) from appreciating,and a devaluation must take place in which the official exchange rate is set at a lower value
B) from appreciating,and a devaluation must take place in which the official exchange rate is set at a higher value
C) from depreciating,and a devaluation must take place in which the official exchange rate is set at a lower value
D) from depreciating,and a revaluation must take place in which the official exchange rate is set at a higher value

Question

Quizplus · Accepted Answer

If a country's international reserves are exhausted, it means that the demand for its currency is greater than its supply. This leads to an appreciation of the currency, making exports more expensive and imports cheaper. To restore competitiveness and balance the demand and supply of the currency, a devaluation must take place in which the official exchange rate is set at a lower value. This lowers the price of exports and increases the price of imports, helping to boost exports and reduce imports, thereby improving the balance of trade. Therefore, option C is the best choice as it correctly describes the situation and the required action.

Under a System of Fixed Exchange Rates,if the International Reserves