If the government of a country is maintaining an overvalued currency against the dollar,then the quantity of ________ in the foreign exchange market.

Question

Quizplus · Accepted Answer

When a government maintains an overvalued currency against the dollar, it means the domestic currency's value is artificially kept higher than its market value. This makes the domestic currency more expensive for foreign buyers, reducing their demand for it in exchange for dollars. Consequently, the quantity of dollars supplied (by those wanting to exchange dollars for the overvalued currency) will exceed the quantity of dollars demanded (by those wanting to exchange the overvalued currency for dollars), as fewer people will find it attractive to buy the overvalued currency with dollars.

If the Government of a Country Is Maintaining an Overvalued