(A)What Happens to the Fundamental Value of a Country's Exchange

question 106

Essay

(a)What happens to the fundamental value of a country's exchange rate when it raises its money supply in a fixed exchange-rate system? Does this make the currency overvalued or undervalued if originally the official rate equaled the fundamental value?
(b)What happens to the fundamental value of a country's exchange rate when the foreign country raises its money supply? Does this make the currency overvalued or undervalued if originally the official rate equaled the fundamental value?
(c)So,if a country wants to maintain its official rate equal to its fundamental value,what must it do when the foreign country raises its money supply? What happens to inflation?

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Definitions:

Single Queue

A method of organizing waiting lines that directs all customers to form one line that feeds into multiple service points.

Model A

A specific version or type of a product or system, often denoting its design or features.

M/M/1 System

A model in queue theory representing a system with a single server where arrivals follow a Poisson process and service times are exponentially distributed.

Multichannel

Pertains to using multiple pathways or platforms to reach customers or conduct business.