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Exchange Rates and Net Exports quiz

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  • What is the nominal exchange rate?
    The nominal exchange rate is the rate at which one currency can be exchanged for another in the market at a given time.
  • What happens to imports when a country's currency appreciates?
    Imports increase because the stronger currency can buy more foreign goods.
  • How does currency appreciation affect exports?
    Exports decrease because foreign buyers face higher costs for the appreciating country's goods.
  • What is the formula for net exports?
    Net exports equal exports minus imports (Net Exports = Exports - Imports).
  • If the US dollar appreciates against the yen, what happens to US net exports?
    US net exports decrease because exports fall and imports rise.
  • What is a trade deficit?
    A trade deficit occurs when a country's imports exceed its exports, resulting in negative net exports.
  • What effect does currency depreciation have on imports?
    Currency depreciation makes imports more expensive, so imports decrease.
  • How does currency depreciation affect exports?
    Exports increase because the country's goods become cheaper for foreign buyers.
  • What is a trade surplus?
    A trade surplus occurs when a country's exports exceed its imports, resulting in positive net exports.
  • What always happens to the other currency when one currency appreciates?
    When one currency appreciates, the other currency in the pair depreciates.
  • If the US dollar depreciates, what happens to US net exports?
    US net exports increase because exports rise and imports fall.
  • Why does a stronger currency lead to a trade deficit?
    A stronger currency increases imports and decreases exports, reducing net exports and potentially causing a trade deficit.
  • How does a weaker currency benefit exporting companies?
    A weaker currency makes exports cheaper for foreign buyers, increasing demand for exported goods.
  • If the exchange rate changes from 108 yen per dollar to 112 yen per dollar, what has happened to the US dollar?
    The US dollar has appreciated because it now buys more yen per dollar.
  • What is the inverse relationship between exchange rates and net exports?
    When a currency appreciates, net exports decrease; when it depreciates, net exports increase.