If the Chinese yuan is pegged below the equilibrium exchange rate as expressed in United States (US)dollars per yuan:
A)the currency is undervalued.
B)the currency is overvalued.
C)there will be a surplus of the yuan.
D)the Chinese central bank must sell dollars to maintain the pegged rate.

Question

Quizplus · Accepted Answer

If the Chinese yuan is pegged below the equilibrium exchange rate as expressed in US dollars per yuan, it means that it takes fewer US dollars to buy one yuan than the market exchange rate would suggest. This indicates that the yuan is undervalued because its exchange rate is artificially low compared to its true value. Thus, the correct choice is A, the currency is undervalued.

If the Chinese Yuan Is Pegged Below the Equilibrium Exchange