With fixed exchange rates, assume that the home currency becomes undervalued relative to its par value.Other things equal, to maintain the fixed exchange rate, the home country's central bank must
A) purchase the home currency, and as a result it loses international reserves.
B) purchase the home currency, and as a result it gains international reserves.
C) sell the home currency, and as a result it loses international reserves.
D) sell the home currency, and as a result it gains international reserves.

Question

Quizplus · Accepted Answer

To maintain a fixed exchange rate when the home currency is undervalued, the central bank must purchase the home currency, which leads to a loss of international reserves.

With Fixed Exchange Rates, Assume That the Home Currency Becomes