Question

If you work for a company that __________, you do not want the home currency to __________?

1) depends on sales in foreign markets; depreciate
2) faces a lot of foreign competition in the local market; appreciate
3) faces a lot of foreign competition in the local market; depreciate
4) imports a lot of goods; appreciate

Answer 1

A stronger currency reduces a country's exports as it decreases the profits of firms selling abroad. As a result, the firm may choose to reduce its exports or raise its selling price, further reducing its exports. A stronger currency reduces a country's exports as it decreases the profits of firms selling abroad.

Step-by-step explanation:

A stronger currency reduces a country's exports. For example, if a U.S. firm sells abroad and earns foreign currencies, a stronger U.S. dollar means that the foreign currency buys fewer U.S. dollars, reducing the firm's profits.

As a result, the firm may choose to reduce its exports or raise its selling price, further reducing its exports. A stronger currency reduces a country's exports as it decreases the profits of firms selling abroad.