A country will have a balance-of-payments deficit when its exchange rate:
A)equals the market equilibrium value.
B)is flexible.
C)is overvalued.
D)is undervalued.

Question

Quizplus · Accepted Answer

To maintain an overvalued exchange rate, a nation's government can become a demander of its own currency in the foreign exchange market by buying any excess currency. This will however cause a net decline in a country's stock of international reserves or a balance-of-payments deficit.

A Country Will Have a Balance-Of-Payments Deficit When Its Exchange