Under a system of fixed exchange rates,what happens if a country's currency is overvalued?
A)The central bank loses official reserve assets.
B)The central bank gains official reserve assets.
C)The currency appreciates.
D)The exchange rate rises.

Question

Quizplus · Accepted Answer

If a country's currency is overvalued under a fixed exchange rate system, its central bank will have to sell its own currency and buy foreign currency in the foreign exchange market as a result of the external demand for its overvalued currency. This leads to a decrease in the country's official reserve assets because they are used to buy foreign currency.

Under a System of Fixed Exchange Rates,what Happens If a Country's