Question

When a country's currency depreciates A) foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are more expensive. B) foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are cheaper. C) foreigners find that its exports are cheaper; however, domestic residents are not affected. D) foreigners are not affected, but domestic residents find that imports from abroad are more expensive. E) foreigners find that its exports are cheaper and domestic residents find that imports from abroad are more expensive.

Answer 1

Answer:

The correct answer is D) foreigners are not affected, but domestic residents find that imports from abroad are more expensive.

Explanation:

The currency of a country depreciates when it loses value with respect to the rest of the currencies.

If depression occurs only in one country, the rest of the world continues its normal course, but residents of that country find that imported products have a higher cost.

The reality is that imported products continue to have the same value as before the devaluation, but the monetary units needed to acquire them are greater because the value of local money is less than before the devaluation.

As the income in local currency of individuals and companies are generally the same, in the short term, imported goods and services appear to be more expensive.

Companies that sell products to the country whose currency was devalued may also be affected because it will be more difficult to continue selling to this country at the same price as before.