Suppose, before the Asian financial crisis, the Thai baht was fixed against the dollar at a rate of 26 bahts for one U.S.dollar.If the exchange rate were allowed to float freely, the market would then set the rate at 35 bahts for one dollar.Under these circumstances, we say that the baht was:

Question

Quizplus · Accepted Answer

If the market rate for the Thai baht is greater than its fixed rate against the dollar, it means that the baht is overvalued, meaning that its value is artificially high. This is the case in this scenario where the market rate is 35 bahts for one dollar, which is higher than the fixed rate of 26 bahts for one dollar. Therefore, the correct answer is C, overvalued.

Suppose, Before the Asian Financial Crisis, the Thai Baht Was