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Assume that the Orono currency, the crown, has a fixed exchange rate of 2 Oronos per U.S. dollar. The equilibrium exchange rate should be 1 Orono per dollar.
In this case, with a fixed exchange rate, which of the following is true?
The Orono crown is overvalued and Orono will be importing more than it is exporting.
Orono will have a balance of payments deficit, unless the crown depreciates in value.
The U.S. dollar is overvalued and the U.S. will likely import more than it exports.
Orono will have a current account surplus that will be just offset by a financial account deficit, balancing its international payments.