ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
One side loses purchasing power and the other gains it
|
|
|
Takes money away from one side and gives it to the other
|
|
|
Causes war between the two countries
|
|
|
One country’s government introduces tariffs to protect local industries
|
Detailed explanation-1: -How Does a Higher Exchange Rate Affect Trade? When a country’s exchange rate increases relative to another country’s, the price of its goods and services increases. Imports become cheaper. Ultimately, this can decrease that country’s exports and increase imports.
Detailed explanation-2: -When exchange rates change, the prices of imported goods will change in value, including domestic products that rely on imported parts and raw materials. Exchange rates also impact investment performance, interest rates, and inflation-and can even extend to influence the job market and real estate sector.
Detailed explanation-3: -The purchasing power parity (PPP) exchange rate is the exchange rate between two currencies which would equate the two relevant national price levels if expressed in a common currency at that rate, so that the purchasing power of a unit of one currency would be the same in both economies.
Detailed explanation-4: -On the one hand, devaluation happens when a government makes monetary policy to reduce a currency’s value; on the other hand, depreciation happens as a result of supply and demand in a free foreign exchange market.