Final answer:
The correct answer is D.
A weaker dollar leads to U.S. goods being more affordable internationally, which can increase exports but makes foreign goods more costly for domestic consumers, reducing imports. A stronger dollar has the opposite effect, reducing exports by making U.S. goods more expensive abroad. Currency strength affects international trade and foreign direct investment.
Step-by-step explanation:
A decline in the value of the U.S. dollar relative to other currencies is referred to as a weaker dollar. This means that the dollar buys less of the foreign currency than before, a condition also known as depreciating. For a U.S. firm selling abroad, a weaker dollar can be favorable, as it makes U.S. goods more affordable to foreign consumers, potentially leading to increased exports. Conversely, domestic consumers will find that foreign goods become more expensive, likely decreasing imports. In contrast, a stronger dollar can be problematic for U.S. exporters, as it makes their goods more expensive abroad and can reduce profits when foreign earnings are converted back to dollars. A floating exchange rate system allows market forces to dictate the value of a currency, and countries may engage in foreign direct investment (FDI) as part of their economic activities with the U.S.
From the perspective of U.S. purchasers, a weaker dollar means foreign goods are more expensive, leading to a decrease in U.S. imports. This scenario could be disadvantageous for foreign exporters who rely on the U.S. market. Therefore, the relative strength or weakness of a currency has significant implications for international trade and investment.