Official reserves are essential for countries that fix the value of their currencies beneath the market value.
Answer the following statement true (T) or false (F)
False
If an exchange rate is fixed below the market rate, demand will exceed supply, forcing the government to sell its own currency in the foreign exchange market. Since the domestic government can do this indefinitely, it has no need for official reserves. Official reserves are needed if a government wants to hold its currency above market value.
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