Question:
Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar _______
A. depreciates so U.S. goods become less expensive relative to foreign goods.
B. depreciates so U.S. goods become more expensive relative to foreign goods.
C. appreciates so U.S. goods become less expensive relative to foreign goods.
D. appreciates so U.S. goods become more expensive relative to foreign goods
Answer
D. appreciates so U.S. goods become more expensive relative to foreign goodsExplanation
in this scenario, we can see that the intial exchange is .8 euros per dollar and after which there is a notable increase in dollar value that pushes the euros to .9 per dollar which means that the euro is losing value relative to the dollar. Consider that when more of one currency is needed to equate with the value of another currency, the latter has more value than the former which increases as more of the currency is needed to equate one dollar amount value.
