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March 25, 2017

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Exporters suffer when their home currency depreciates and prosper when it appreciates. True or false? and why?

  • econ - ,

    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.

  • econ - ,

    so the answer is false?

  • econ - ,

    Evidentally I didn't explain my answer very well. Please check your text materials.

  • econ - ,

    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.

  • econ - ,

    but did ms. sue imply that the answer is true?

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