Question

The United Kingdom currently has a trade 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?
A. The U.K.'s demand will remain the same
B. The U.K.'s demand for New Zealand goods can't be determined
C. The U.K's demand for New Zealand goods will rise
D. The U.K.'s demand for New Zealand goods will decline

Answer 1

C. The U.K.'s demand for New Zealand goods will rise — a stronger pound makes New Zealand goods cheaper in pound terms, so UK buyers can afford more imports from New Zealand.