The Demand for Euros in the Foreign Exchange Market Equals

Multiple Choice

The demand for euros in the foreign exchange market equals 8,000 - 2,000 e and the supply of euros in the foreign exchange market equals 3,000 + 3,000 e, where e is the nominal exchange rate expressed in U.S. dollars per euro. If the euro is fixed at 1.25 U.S. dollars per euro, then the euro is ________ and Euroland has a balance-of-payments ________.

A) overvalued; surplus of 1,250 euros
B) overvalued; deficit of 1,250 euros
C) undervalued; deficit of 1,250 euros
D) undervalued; surplus of 1,250 euros