With a system of fixed exchange rates, a country that exhausts its international reserves in an attempt to keep its currency from _____ will have to ______ its currency
A) depreciating, devalue
B) depreciating, revalue
C) appreciating, devalue
D) appreciating, revalue

Question

Quizplus · Accepted Answer

If a country exhausts its international reserves in an attempt to keep its currency from depreciating, it will have to devalue its currency. This means reducing the value of the currency compared to other countries' currencies. With fixed exchange rates, this is necessary because the country is committed to maintaining the exchange rate between its currency and other currencies at a fixed level, and if its currency is becoming less valuable compared to other currencies due to market forces, the only way to maintain the fixed exchange rate is to devalue the currency.

With a System of Fixed Exchange Rates, a Country That