Under a Fixed Exchange Rate Regime,if the Domestic Currency Is

question 46

Multiple Choice

Under a fixed exchange rate regime,if the domestic currency is initially ________,that is,________ par,the central bank must intervene to purchase the domestic currency by selling foreign assets.

• A)overvalued;below
• B)overvalued;above
• C)undervalued;below
• D)undervalued;above

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Definitions:

Economic Inefficiency

arises when resources are not allocated in a way that maximizes the potential output or when there is a failure to fully utilize resources, resulting in lost potential gains.

Limit Pricing

A competitive strategy where a firm sets the price of its product low enough to discourage new entrants from entering the market.

Technological Advance

The process of developing and implementing new technologies to improve products, services, or processes, driving economic growth and efficiency.

First-Mover Advantage

The competitive advantage gained by the initial significant occupant of a market segment, allowing for the establishment of strong brand recognition and customer loyalty before rivals enter the market.