ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
A country's currency depreciates significantly on the foreign exchange markets. Other things being equal, what is the most likely effect on its trade?
Depreciation makes exports cheaper for overseas buyers and imports more expensive for domestic buyers. Foreigners need less of their own currency to buy the country's goods, while residents must pay more local currency for foreign goods. This tends to boost exports and reduce imports.
- AExports become more expensive for overseas buyers and imports cheaper
- BExports become cheaper for overseas buyers and imports more expensiveCorrect
- CBoth exports and imports become cheaper
- DBoth exports and imports become more expensive
Explanation
A weaker currency means foreign buyers need less of their own currency to buy the country's goods, so exports are cheaper abroad. Domestic buyers need more local currency to buy foreign goods, so imports become dearer. Option A describes the effect of appreciation.
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