The United Kingdom currently has a tade deficit with New Zealand. If the U.K. pound sterling appreciates relative to the New Zealand dollar, which of the following correctly explains the effect on the U.K.'s demand for goods from New Zealand?

Question

A. The U.K’s demand will remain the same
B. The U.K’s demand for new zealand goods will rise
C. The U.K’s demand for new zealand goods will decline
D. The U.K’s demand for new zealand goods can’t be determined

Answer 1

When the U.K. pound sterling appreciates relative to the New Zealand dollar, it means that the pound can buy more New Zealand dollars than before. As a result, goods from New Zealand become more expensive for consumers in the U.K. This typically leads to a decrease in demand for New Zealand goods, as they are now relatively more costly compared to domestic goods or goods from other countries.

Therefore, the correct answer is:

C. The U.K’s demand for New Zealand goods will decline.