[jsch8912]

What is the effect on prices of U.S. imports and exports when the dollar depreciates?

A.

Import prices and export prices will decrease.

Incorrect 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:

As the dollar depreciates, the demand for the dollar decreases. This means that its value decreases in terms of the value of other currencies. It takes more dollars to buy the same amount of foreign currency and foreign goods. This means that the prices of imports increase. In the same manner, prices of U.S. exports decrease as the dollar depreciates.

I don’t understand exchange rates. If the dollar depreciates, it means the dollar is weaker, if it is weaker, shouldn’t they export?

[Thrawn]

Yes. When the dollar is weaker, it is “good” for US exports because other currencies will buy more US goods. US imports will become more expensive and thus imports will decrease.

BEC 87 Feb 14
REG 84 Apr 14
FAR 82 Nov 14
AUD 86 Feb 15

[jsch8912]

@Thrawn: But why is the answer C??? It says import prices increase :S

[MandiJ21]

@jsch8912-US imports decrease because the price increases when the dollar depreciates. Its more expensive for the US to purchase goods abroad when the dollar value is decreasing.

FAR-85 (1/28/15)
AUD-91 (4/3/15)
BEC-82 (5/21/15)
REG-90 (7/31/15)

I am done!!!!

[jsch8912]

Thank you @MandiJ21! 🙂

[MandiJ21]

You're welcome, glad I could help!

FAR-85 (1/28/15)
AUD-91 (4/3/15)
BEC-82 (5/21/15)
REG-90 (7/31/15)

I am done!!!!

[jsch8912]

If the dollar price increases against the euro, this means that the US currency got weaker. Hence, US would rather export than import. However, if the question asks if the dollar price increases in VALUE, this means that the US currency is stronger right?? In this case, they'd rather import than export because it'd be too expensive overseas…??

[Anonymous]

@jsch8912 –

Yes, if the US dollar price increases in value (or decreases when compared to another currency) that means the US dollar is stronger so you can buy more of the foreign currency with less US dollars making foreign goods more attractive to US consumers because their dollar goes further when buying a foreign good that is a substitute for an American good. And the US export business would decrease because it would cost the foreign consumers more of their local currency to purchase the US good that is a substitute from their country.

Hope this Helps!

[jsch8912]

@dgilbreath: Thank you!! I had to google this last night and now I get it! Before that, I was so confused with the terms and I kept getting these exchange rates questions wrong on Becker and NINJA. When are you taking your exam??

[Anonymous]

@jsch8912

Glad I could help! I had a problem with those the first time I studied for BEC so I feel your pain. I have scheduled my re-take (and hopefully last) BEC exam for May 24th. What about you?

[jsch8912]

@Dgilbreath: Mine is May 23rd!! Hopefully it will be our last exam ever!!

[Author]

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