The need for exchange controls may arise from
A)overvalued exchange rates.
B)export promotion policies.
C)a current account surplus.
D)all of the above.

Question

Quizplus · Accepted Answer

Exchange controls may be needed when exchange rates are overvalued because this can lead to an unsustainable situation where a country's exports become more expensive and imports become cheaper, resulting in a large current account deficit. Exchange controls can be used to limit the amount of foreign currency that can be purchased, thus reducing the demand for the domestic currency and weakening the exchange rate.

B) Export promotion policies may actually require a more flexible exchange rate to help boost exports so exchange controls are not typically needed for this reason.

C) A current account surplus may not necessarily require exchange controls as it suggests that the country is exporting more than it is importing, resulting in a net inflow of foreign currency which can help support the domestic currency.

The Need for Exchange Controls May Arise from