Question 38
Balance of Payments and Exchange RatesWhen a nation is experiencing balance of payments surplus, it is in a better position to
- A.increase its foreign exchange reserves
- B.increase its liabilities to foreigners
- C.reduce its foreign exchange reserves
- D.devalue its national currency.
Show the answer and explanation
Answer: A (increase its foreign exchange reserves)
Explanation
A surplus means more foreign currency is coming in than going out, so the country can add to its foreign reserves.