Under the fixed exchange rate regime, if the government of a country finds its currency to be overvalued and therefore deliberately reduces the value of its current against the foreign currency, it will be called as?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Devaluation of domestic currency.
Under a fixed exchange rate system, the value of a country's currency is officially determined by the government or central bank.
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When the government reduces the value of its currency against foreign currencies deliberately, it is called devaluation.
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When the government raises the value of its currency under a fixed system, it is called revaluation.