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Currency Exchange and Trade Balance
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Which of the following statements accurately describe the impact of currency appreciation on a country's trade balance? (Select all that apply)

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Choose the Best Answer

A

Currency appreciation makes exports more expensive for foreign buyers.

B

Currency appreciation increases the trade surplus.

C

Currency appreciation can lead to a decrease in import costs.

D

Currency appreciation often results in a trade deficit.

E

Currency appreciation has no effect on net exports.

Understanding the Answer

Let's break down why this is correct

Answer

When a country’s currency appreciates, it means that its money is worth more compared to other currencies. This can lead to a decrease in exports because goods from that country become more expensive for other countries to buy. For example, if the U. S. dollar strengthens, American-made products may cost more for foreign buyers, which could reduce sales abroad.

Detailed Explanation

Currency appreciation means the value of a country's money goes up. Other options are incorrect because People might think that higher prices for exports help sales; Some might believe that a trade surplus increases with currency appreciation.

Key Concepts

Currency Appreciation
Trade Balance
Net Exports
Topic

Currency Exchange and Trade Balance

Difficulty

medium level question

Cognitive Level

understand

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