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

Under a fixed exchange rate system, the Central Bank is responsible for maintaining the value of its currency by buying and selling foreign currencies. If a country's currency is undervalued, its Central Bank will need to sell its own currency to buy foreign currencies in order to increase its value. As a result, the Central Bank will gain official reserve assets, leading to an increase in its foreign exchange reserves.

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