Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Trade balance will improve due to increased exports.
B
Trade balance will worsen as imports become cheaper.
C
Trade balance will remain unchanged regardless of currency fluctuations.
D
Trade balance will improve only if domestic consumption increases.
Understanding the Answer
Let's break down why this is correct
Answer
When a country's currency appreciates, it means that its money becomes stronger compared to other currencies. This strength makes imported goods cheaper for people in that country, so they might buy more from abroad. At the same time, products made in that country become more expensive for people in other countries, which can lead to fewer exports. As a result, the country could end up importing more than it exports, leading to a trade deficit. For example, if a country’s currency rises in value, a car that costs $20,000 in the country might cost only $15,000 for foreign buyers, making the car less attractive to them while locals might buy more foreign cars instead.
Detailed Explanation
When a country's currency gets stronger, imports become cheaper. Other options are incorrect because Some might think that stronger currency means more exports; It's a common mistake to think currency changes don't matter.
Key Concepts
Trade balance definition
Appreciation vs. depreciation of currency
Import/export ratio
Topic
Currency Exchange and Trade Balance
Difficulty
hard level question
Cognitive Level
understand
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