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Author Question: What is an overvalued exchange rate? What factors may cause a country's currency to become ... (Read 88 times)

nevelica

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on: Jun 30, 2018
What is an overvalued exchange rate? What factors may cause a country's currency to become overvalued?
 
  What will be an ideal response?

Question 2

Government regulations that worsen the performance of financial institutions include:
 
  a. interest rate ceilings
  b. reserving a minimum portion of loans for rural borrowers
  c. a high percentage of deposits kept in reserve
  d. subsidies for low-income borrowers
  e. all of the above


Expo

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Reply #1 on: Jun 30, 2018
Answer to Question 1

The value of the domestic currency is greater than its value at the equilibrium point
in the foreign exchange market. One likely reason why currencies become overvalued
is the insistence of the central bank in maintaining fixed exchange rates in the face of substantial domestic inflation.

Answer to Question 2

E


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