Question

Consider the following statement: ""A country that grows faster than its major trading partners can expect the international value of its currency to depreciate."" This statement is.

Answer 1

Answer:

This statement is false. since the country that grows faster than its major trading partners can expect the international value of its currency to appreciate.

Explanation:

A country that grows faster than its major partners will expects the international value of its currency to rise. A growth in the economy generally means that the producing power of its economy is also growing. This means that this particular country will produce more of the goods and services in comparison to it's major trading partners. When this happens, it means that these countries will need to purchase more goods or services from this country.

In order to purchase goods or services from another country, one needs to exchange their currency for the other currency first before making the purchase. This means that the currency of the country with a faster growth will be bought more. If a currency is bought more, its value increases with the rate at which it is bought.

The trading partners will therefor need more of the currency of the country with the highest economic growth rate. This means that the demand for this currency on an international scale will be very high. A higher demand for a currency at an international level causes the international value to increase.