What is the situation when a home currency purchases more goods and services at home than abroad when converted to a foreign currency?
A) The domestic currency is undervalued.
B) The domestic currency is overvalued.
C) The domestic currency is unstable.
D) The domestic currency is depreciating.

Question

Quizplus · Accepted Answer

When a home currency purchases more goods and services at home than abroad when converted to a foreign currency, it means that the domestic currency is overvalued. This is because domestic goods and services are relatively more expensive than foreign goods and services, making them less attractive to foreign buyers and reducing demand for the domestic currency on the foreign exchange market. As a result, the value of the domestic currency falls, which makes domestic goods and services more competitive internationally and increases demand for them, eventually leading to a balance between domestic and foreign purchases.

What Is the Situation When a Home Currency Purchases More