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

Question

Quizplus · Accepted Answer

If a country's currency is undervalued under a fixed exchange rate system, other countries will likely want to purchase the undervalued currency, thereby increasing demand and causing the value of the currency to rise. To maintain the fixed exchange rate, the country's central bank will need to intervene by selling its own currency and buying foreign currency, resulting in an increase in official reserve assets.

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