Question

If you are vacationing in France and the dollar depreciates relative to the euro, then the dollar buys ________?

1) more euros
2) less euros
3) the same amount of euros
4) cannot be determined

Answer 1

When the dollar depreciates relative to the euro, each dollar exchanged will buy less euros, meaning a vacation in France becomes more expensive for a traveler using dollars.

Step-by-step explanation:

If you are vacationing in France and the dollar depreciates relative to the euro, then the dollar buys less euros. Depreciation of the dollar means that each dollar you exchange provides you with fewer euros because the value of the dollar has decreased in comparison to the euro.

This situation is similar to that faced by a U.S. importer purchasing a foreign trip: a weaker dollar leads to a more expensive trip since expenditures in the foreign currency will require more dollars.