When the Euro first was introduced, 1 Euro was worth about one U.S. dollar. At that time a U.S. exporter who could sell his widget for $1.00 in the U.S. would get about the same amount for exporting it to Europe.
Today, the Euro is worth about U.S. $1.57. The dollar has depreciated and is now worth only about 0.64 Euro. The exporter now must either charge Europeans more for his widget (not likely) or lose money.
Exporters suffer when their home currency depreciates and prosper when it appreciates. True or false? and why?
5 answers
so the answer is false?
Evidentally I didn't explain my answer very well. Please check your text materials.
False.
exporters love when the home currency depreciates and hate when it appreciates. Take Ms Sue's example. Say a firm has a good which it sells for $1. Initially, europeans could take 1 euro, exchange for $1, and buy the good. Today, a european could take .64 euros, exchange for $1 and buy the good. That is, price went down in europe which should increase quantity demanded, yet the producer still gets the same $1 per unit.
exporters love when the home currency depreciates and hate when it appreciates. Take Ms Sue's example. Say a firm has a good which it sells for $1. Initially, europeans could take 1 euro, exchange for $1, and buy the good. Today, a european could take .64 euros, exchange for $1 and buy the good. That is, price went down in europe which should increase quantity demanded, yet the producer still gets the same $1 per unit.
but did ms. sue imply that the answer is true?