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Usagi
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| Posted: 22 Nov 2011 at 07:00 | IP Logged
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Please help me to understand this question.
Bisk 50-52 55
What's the effect on prices of U.S. imports and exports when the dollar depreciates?
a. Import prices and export prices will decrease
b. Import prices will decrease and export prices will increase
c. Import prices will increase and export prices will decrease
d. Import prices and export prices will increase
The answer is (c)
A decline in the value of a currency relative to the currencies of that nation's trading partners is called depreciation. When deprciation occurs, generally export price decrease as the nation's goods are cheaper to foreign purchasers than before the decline. When depreciation occurs, generally import prices increase, as foreign sellers want more of the devalued currency in exchange for their goods.
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helencpa
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| Posted: 22 Nov 2011 at 08:13 | IP Logged
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ok, lets assume 1 us dollar is equivalent to 1.5 euro and a European buyer imports 1000 units with 10 dollars each from the US manufacturer which he had to pay 10000$............then dollar depreciated with the new exchange being 1$ equivalent to 1.2 euro, continuing with the same e.g, now the European buyer can buy more US product with his 10,000$ b/c of $ devaluation, in other word it means export price is reduced and import price s increased (a US buyer will have to spend more money to import than before).
I hope it makes sense......
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Usagi
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| Posted: 02 Dec 2011 at 13:12 | IP Logged
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Thank you helencpa. I got it!
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Topic: BEC-currency exchange
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