expect balance of payments surplus
have increased demand forthe exports
increase her foreign reserve
decreased her foreign reserve
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Discussions (8)
A is correct because, poor countries like Nigeria cannot import from U.S.A due to devalued currency which would cause deficit or inability to pay for import.
On the other hand, U.S.A can import from Nigeria due to over valued currency in relation to Nigeria's devalued currency. Meaning, there would be surplus on BOP of USA during trade. That is, they would import and "change go still remain" lol
A country with an overvalued currency will generally experience decreased foreign reserves, as the high currency value makes exports expensive and imports cheap, leading to a trade deficit. This scenario reduces export demand, boosts imports, and can force a central bank to spend reserves to defend the currency's
I disagree. Probably because if a currency becomes over-valued, there's every reason for the foreign reserve to decrease at the point of settling the differnces. So i give an (d)
An over-valued currency means the country’s currency is too strong relative to others.
This leads to:
• Exports becoming expensive → foreigners buy less
• Imports becoming cheaper → citizens buy more from abroad
As a result:
• More money flows out of the country than in
• The central bank may use its reserves to stabilize the currency
This situation can worsen the Balance of Payments and leads to a reduction in foreign reserves.
