Question
Under a fixed exchange rate system, a government is at risk of running out of foreign currency reserves when the country's imports exceed its exports.
True
False
True
False
Answers
GPT-5 mini
True.
If imports exceed exports under a fixed exchange rate, the central bank must sell foreign currency reserves to supply the foreign exchange needed and defend the peg. Persistent deficits can deplete reserves unless offset by capital inflows, borrowing, or policy changes.
If imports exceed exports under a fixed exchange rate, the central bank must sell foreign currency reserves to supply the foreign exchange needed and defend the peg. Persistent deficits can deplete reserves unless offset by capital inflows, borrowing, or policy changes.