The correct answer is C. devalued.
When a currency is fixed at a rate that is higher than its equilibrium rate, it is considered to have been devalued, as its value in terms of other currencies has been officially lowered. In this case, the Kina is fixed at K7 per US dollar, while the equilibrium exchange rate is K5 per US dollar. This means that the Kina is worth less than it would be in a free market, leading to a conclusion that it has been devalued.
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