APFIVE Currency Speculation and Market Correction
If speculators anticipate that a currency will appreciate significantly in the near future, what market mechanism would prevent an extreme overvaluation of the currency?
A
Interest rates fall, discouraging capital inflows
B
Increased current demand raises the currency’s value, reducing expected future gains
C
The central bank increases the money supply to offset appreciation
D
Exports become cheaper, increasing foreign demand for the currency
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