In a fixed exchange rate system, a country would accumulate reserves when the current account is in _____ and use these reserves during period when the country has a current account balance in ______.
A) surplus, surplus
B) surplus, deficit
C) deficit, deficit
D) deficit, surplus
E) balanced, surplus

Question

Quizplus · Accepted Answer

In a fixed exchange rate system, a country accumulates reserves when it has a current account surplus because it is exporting more than it is importing, thereby earning more foreign currency. These reserves are then used to support the currency during periods of current account deficit, when imports exceed exports and there is a need to sell foreign currency to maintain the fixed exchange rate.

In a Fixed Exchange Rate System, a Country Would Accumulate