Differentiate Between the Process of Defending an Undervalued Currency and an Overvalued

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The Answer is If a currency is undervalued against a foreign currency,the quantity supplied of the foreign currency exceeds the quantity demanded of the foreign currency.Hence,to defend the currency,the domestic government has to buy the foreign currency and sell the domestic currency.In contrast,if a currency is overvalued against a foreign currency,the quantity demanded of the foreign currency exceeds the quantity supplied of the foreign currency.Hence,to defend the currency,the domestic government has to sell the foreign currency and buy the domestic currency.

Differentiate Between the Process of Defending an Undervalued Currency and an Overvalued

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