Q77
Under fixed exchange rate system, fall in the value of domestic currency due to deficit in balance of payments resulted in
A.
depreciation of the currency
B.
devaluation of the currency
C.
appreciation of the currency
D.
no change in the exchange rate normally
AnswerAnswer: Option D
Solution
Answer: Option D
Solution:
Under fixed exchange rate system, fall in the value of domestic currency due to deficit in balance of payments resulted in no change in the exchange rate normally. A fixed exchange rate is a regime applied by a government or central bank ties the country's currency official exchange rate to another country's currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band.