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JAMB Economics 2001 Question 50

Question 50

Balance of Payments and Exchange Rates

A country with over-valued currency will

  1. A.expect balance of payments surplus
  2. B.have increased demand for her exports
  3. C.increase her foreign reserve
  4. D.decrease her foreign reserve
Show the answer and explanation

Answer: D (decrease her foreign reserve)

Explanation

An over-valued currency makes exports dear and imports cheap, so the country tends to run deficits and loses foreign reserves.