Suppose that the euro/US dollar exchange rate changes from 1,3 dollar per euro to 1,1 dollar...
Suppose that the euro/US dollar exchange rate changes from 1,3 dollar per euro to 1,1 dollar per euro. Then:
a) The euro has depreciated against the dollar.
b) This will decrease the demand for Eurozone goods by the United
States.
c) This will lead to a rise in exports by the United States to the
Eurozone.
d) The euro has appreciated against the dollar.
Homework Answers
Correct answer:
A
Correct answer is alternative A, because now 1 euro can only buy (exchange) 1.1 USD, but earlier it was able to buy (exchange) 1.3 USD. So, it is clearly indicated that euro has depreciated against USD in exchange rate. It will increase the export or demand of Euro zone goods in USA and US exports will suffer as dollar has appreciated.
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