If a government runs a fixed exchange rate system and increases the dollar price of its currency,we say there has been a(n)
A) appreciation of the foreign currency
B) depreciation of the foreign currency
C) revaluation of the foreign currency
D) devaluation of the foreign currency
E) fixing of the foreign currency

Question

Quizplus · Accepted Answer

When a government increases the dollar price of its currency in a fixed exchange rate system, it is known as a revaluation of the foreign currency. This means that the government has officially increased the value of its currency relative to the U.S. dollar (or whichever currency is used as the anchor in the fixed exchange rate system). A devaluation would be the opposite, where the government officially reduces the value of its currency relative to the anchor currency. Appreciation and depreciation refer more broadly to changes in value that can occur in floating exchange rate systems where market forces determine the exchange rate. Finally, fixing of the foreign currency is not a term commonly used to describe changes in exchange rates.

If a Government Runs a Fixed Exchange Rate System and Increases