If the central bank pegs the exchange rate above its free -market equilibrium level, there will be an)
Of foreign exchange and the central bank will foreign currency.

Question

Quizplus · Accepted Answer

When the central bank pegs the exchange rate above the free-market equilibrium level, it creates an excess supply of foreign currency because the domestic currency is overvalued. To maintain the peg, the central bank must purchase the excess foreign currency.

If the Central Bank Pegs the Exchange Rate Above Its