A country's currency becomes overvalued when its exchange rate is higher than warranted by its economic conditions.

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When a country's currency becomes overvalued, it means that the currency is trading at a higher rate than what it should be based on its current economic environment. This can happen when investors have more confidence in the country's economy than they should, or if the country's central bank is artificially propping up the currency. An overvalued currency can lead to a trade imbalance, as the country's exports become more expensive to foreign buyers, while imports become cheaper.

A Country's Currency Becomes Overvalued When Its Exchange Rate Is