ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
A country's currency appreciates significantly against those of its main trading partners. Which effect on its trade is most likely, other things being equal?
Exports become dearer for foreign buyers and imports become cheaper for domestic buyers. An appreciating currency buys more foreign currency, so overseas customers pay more of their own money for the country's goods, while imports cost less in home currency. Depreciation would produce the opposite effects.
- AExports become cheaper for foreign buyers and imports dearer for domestic buyers
- BExports become dearer for foreign buyers and imports cheaper for domestic buyersCorrect
- CBoth exports and imports become dearer, leaving the trade balance unchanged
Explanation
An appreciation means one unit of the home currency buys more foreign currency. Foreign buyers must pay more of their own currency for the country's goods, so exports become less competitive. Domestic buyers pay less home currency for imports, which become cheaper. The first option describes depreciation.
Did you get it right without looking?
One question tells you little. A timed set on Macroeconomic factors shows your real accuracy, how long you take and where you lose marks.
More Macroeconomic factors questions
- Several European countries have adopted the euro as a single currency. Which is a direct benefit to a business trading between two of these …
- A company with large variable-rate bank borrowings learns that the central bank has unexpectedly increased its base rate. Which is the most …
- A government wishes to reduce demand-pull inflation using fiscal policy. Which action is most consistent with this aim?
- A government has a budget deficit and funds it by issuing bonds. Which statement describes a budget deficit?
- An economy experiences a prolonged fall in the general price level. Consumers delay purchases expecting lower prices later, and firms cut ou…
- A government wants to reduce structural unemployment caused by a mismatch between workers' skills and available jobs. Which policy is most a…