📚 Learning Guide
Foreign Exchange Market Dynamics
easy

If demand for Japanese Yen increases due to rising investments in Japan, what is the likely impact on the value of the Yen and trade balance with France?

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Learning Path

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Choose the Best Answer

A

The Yen appreciates, improving Japan's trade balance with France.

B

The Yen depreciates, worsening Japan's trade balance with France.

C

The Yen remains stable, having no effect on trade balance.

D

The Yen appreciates, worsening Japan's trade balance with France.

Understanding the Answer

Let's break down why this is correct

Answer

When the demand for Japanese Yen increases because more people want to invest in Japan, the value of the Yen will likely rise. This is because more investors need to buy Yen to make their investments, which drives up its price. As the Yen becomes more valuable, Japanese goods and services may become more expensive for people in other countries, including France. Consequently, French consumers might buy fewer Japanese products, leading to a decrease in exports from Japan to France. This change can negatively impact Japan's trade balance with France, as Japan would sell less to France while potentially buying more from them.

Detailed Explanation

When more people want Yen, its value goes up. Other options are incorrect because Some might think that if the Yen loses value, it helps trade; It's a common mistake to think nothing changes.

Key Concepts

Currency appreciation
Investment impact on currency value
Trade balance
Topic

Foreign Exchange Market Dynamics

Difficulty

easy level question

Cognitive Level

understand

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