The domestic currency is said to be ________ if it has appreciated at a lower rate than the difference between the domestic inflation rate and the higher foreign inflation rate.
A)undervalued
B)overvalued
C)appreciated
D)risky

Question

Quizplus · Accepted Answer

When a domestic currency appreciates at a lower rate than the difference between the domestic inflation rate and the higher foreign inflation rate, it is considered undervalued. This is because the currency's value has not increased as much as the inflation differential would suggest, making it cheaper relative to foreign currencies.

The Domestic Currency Is Said to Be ________ If It