An overvalued currency arises when
A)the demand for the currency exceeds the supply.
B)the Central Bank gains reserves while maintaining the exchange rate.
C)the Central Bank keeps the official rate above the fundamental value.
D)the Central Bank keeps the official rate below the fundamental value.

Question

Quizplus · Accepted Answer

An overvalued currency occurs when the Central Bank keeps the official rate above the fundamental value, meaning it is artificially high compared to its true value based on the country's economic fundamentals. This can lead to negative consequences such as reducing exports and economic growth.

An Overvalued Currency Arises When