Question

The dollar is said to depreciate against the euro if

Select one:

a. the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.

b. the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods.

c. the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods.

d. the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.

Answer 1

Depreciation is the decrease in the value of currency relative to the foreign currency. A depreciated currency is less valuable. Therefore, it can buy lesser amount of foreign currency.

It is given that the dollar is depreciated against euro. It means that they are less valuable as compared to euros. And dollars became cheaper as compared to euros. It means it buy a smaller number of euros.

The dollar is said to depreciate against the euro if the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods.

Thus, option \(\mathbf{A}\) (the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods) is correct.