Chapter 42, Problem 1MCQ

To determine

The correct option for the effect on the value of country U’s currency and country J’s currency if more yen can be bought by US dollar.

Answer to Problem 1MCQ

Option b is correct.

Explanation of Solution

Explanation for the correct option:

b.

For instance, if $1 will buys 10 Japanese Yen which was earlier only 8 Japanese Yen then the value of the Japanese Yen has depreciated as more currency will be paid against one dollar. Also, the value of the dollar is appreciated.

Explanation for incorrect options:

a.

The Japanese Yen is depreciated as more currency is required to be paid for buying one dollar.

c.

Dollar value has appreciated as more Japanese Yen can be bought using only one dollar.

e.

There will be a change in interest rates in the long-run for both countries.

Economics Concept Introduction

Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.