Figure 15.8 Alt text for Figure 15.8: In figure 15.8, a graph illustrates the quantity of rupees traded against the exchange rate.
Long description for Figure 15.8: The x-axis is labelled, quantity of rupees traded.The y-axis is labelled exchange rate, Canadian dollar against the rupee, with value 0.02 marked.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.A straight line demand curve, D, slopes down from the top left corner to the bottom right corner.Curves S and D intersect at point with a y-axis value of 0.02, which is connected to the corresponding y-axis value with a dotted line.
-Refer to Figure 15.8.If the Indian government pegs its currency to the Canadian dollar at a value above $.02/rupee, we would say the currency is

Question

Figure 15.8  Alt text for Figure 15.8: In figure 15.8, a graph illustrates the quantity of rupees traded against the exchange rate.
Long description for Figure 15.8: The x-axis is labelled, quantity of rupees traded.The y-axis is labelled exchange rate, Canadian dollar against the rupee, with value 0.02 marked.A straight line supply curve, S, slopes up from the bottom left corner to the top right corner.A straight line demand curve, D, slopes down from the top left corner to the bottom right corner.Curves S and D intersect at point with a y-axis value of 0.02, which is connected to the corresponding y-axis value with a dotted line.
-Refer to Figure 15.8.If the Indian government pegs its currency to the Canadian dollar at a value above $.02/rupee, we would say the currency is

Quizplus · Accepted Answer

If the Indian government pegs its currency to the Canadian dollar at a value above $.02/rupee, it means that the exchange rate is set higher than the equilibrium point where the supply and demand curves intersect. This will result in a situation where the rupee is overvalued, as its exchange rate is higher than what it should be in the market.

Figure 158 Alt Text for Figure 15