If the Market Equilibrium Value of the Nominal Exchange Rate

Multiple Choice

If the market equilibrium value of the nominal exchange rate equals 0.20 U.S. dollars per franc, but the franc is officially fixed at 0.25 U.S. dollars per franc, then the franc exchange rate is ________ and to maintain this exchange rate there will be ________ in the government's stock of international reserves.

A) undervalued; a net decline
B) undervalued; a net increase
C) overvalued; a net increase
D) overvalued; a net decline