Suppose That in the Free Market,where the Supply of the Foreign

question 21

Multiple Choice

Suppose that in the free market,where the supply of the foreign currency is equal to demand for that currency,the peso-dollar exchange rate is 4 pesos = $1. Assume the central bank sets an official exchange rate at 3 pesos = $1,we can say that in the official market the dollar is

• A)overvalued.
• B)undervalued.
• C)appreciated.
• D)None of the above.