ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The dollar depreciates and the US demand for euros increases
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The US demand for euros increases
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The Euro Area supply of euros increases
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None of the above
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Detailed explanation-1: -If the dollar depreciates (the exchange rate falls), the relative price of domestic goods and services falls while the relative price of foreign goods and services increases.
Detailed explanation-2: -If the demand for the dollar increases then so does its value. Conversely, if the demand decreases, so does the value. The demand for the dollar increases when international parties, such as foreign citizens, foreign central banks, or foreign financial institutions demand more dollars.
Detailed explanation-3: -In 2015, there was a sharp depreciation in the value of the euro against the United States dollar (down 16.5 %). Thereafter, developments were again irregular, with the euro appreciating in 2017, 2018, 2020 and 2021, but depreciating in 2019 and notably in 2022 (down 11.0 %).
Detailed explanation-4: -If a currency appreciates it is more valuable; if a currency depreciates it is less valuable. When an exchange rate changes, the value of one currency will go up while the value of the other currency will go down.