Question

The appreciation of a country's currency:

Select one:

A) reduces the price of your exports and imports

B)increases the price of your exports and does not affect the price of your imports

C)reduces the price of its exports and increases the price of its imports

D)increases the price of your exports and reduces the price of your imports

Answer 1

The appreciation of a country's currency:

D. increases the price of your exports and reduces the price of your imports.

Note: If the domestic currency appreciates, it means that now that domestic country (here "Europe" can purchase foreign currency at lower exchange rate and foreign country (here "US") has to pay more for purchasing the domestic currency and vice versa (lets say, previously exchange rate was 1 Dollar = 70 Euro and now 1 Dollar = 65 Euro, this means euro has appreciated, now it will cost less for european citizens to purchase 1 dollar and situation will be different for US citizens). Now, suppose if European citizens import goods from US then they have to pay less Euro to purchase foreign currency to pay the US export (this reflects decrease in import price here). Also, assume if citizens from US import goods from Europe of worth 1000 Euro then now they will have to pay more dollars to purchase 1000 Euro to pay the export of Europe (export price increases here). Hence, exports become costly and import become cheaper with appreciation of country's currency.