Suppose the government of South Island fixes the exchange rate of its currency, the Islandia, in terms of the U.S. dollar. Initially the exchange rate is set at $1 per Islandia. Later the government changes the exchange rate to $2 per Islandia. This is an example of a(n):
A)appreciation.
B)depreciation.
C)devaluation.
D)revaluation.

Question

Quizplus · Accepted Answer

A currency revaluation is an increase in the official value of a currency in a fixed-exchange-rate system. The Islandia is worth more in terms of dollars after government changed the exchange rate.

Suppose the Government of South Island Fixes the Exchange Rate