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Topic: US CURRENCY APPRECIATION PLEASE HELP!!!! (

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nelpie
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Joined: 22 Nov 2011
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Posted: 01 Mar 2012 at 19:08 \| IP Logged

IF THE US CURRENCY APPRECIATES AGAINST FOREIGN CURRENCY, DOES THIS CAUSE US FOREIGN DEBT TO DECREASE? PLEASE SAY YES LOL..

Mars
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Joined: 11 Mar 2007
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Posts: 514

Posted: 02 Mar 2012 at 20:17 \| IP Logged

YES ;) since you asked :)

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Mars
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Posted: 02 Mar 2012 at 20:22 \| IP Logged

suppose it is debt of KC 10,000

1 KC was bought by USD 5, debt = 50,000 (5 X 10,000)

Now USD appreciates, it can buy more KCs than before,

lets say, 1 KC will be bought by USD 4, debt 40,000 (4 X 10,000)

-----------------------------------

I briefed, as I feeled you justed wanted to confirm.

let me know if it is still not clear.

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nambivar
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Joined: 14 Nov 2010
Location: United States
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Posted: 03 Mar 2012 at 03:03 \| IP Logged

Nelpie: Assume the exchange rate as 1 U.S. dollar = 0.76 Euros.
If foreign debt of US is 10000 USD, it is equal to 7600 euros.
Now if the USD appreciates, it means we get more euros for one dollar.
In other words, it means with fewer dollars the same amount of foreign debt of 7600 euros can be settled.
This is what your problem states.
What we need to understand is the foreign debt of US in its currency remains the same but if USD appreciates, it takes fewer dollars to settle the debt.
Hope this helps.
---
Passed all 4 papers 2011

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