Question

If the U.S. dollar-euro exchange rate was $1.25 per euro in June, but changed to $1.30 per euro in July, which of the following is true?

1. The dollar depreciated and the euro appreciated in value
2. The dollar appreciated and the euro depreciated in value
3. The dollar and the euro both appreciated in value
4. There was no change in the value of the dollar and the euro

Answer 1

The dollar depreciated and the euro appreciated in value since it now takes more dollars to buy one euro. A stronger euro can discourage European exports, while a weaker dollar can encourage U.S. exports.

Step-by-step explanation:

If the U.S. dollar-euro exchange rate was $1.25 per euro in June, but changed to $1.30 per euro in July, the correct statement is that the dollar depreciated and the euro appreciated in value. This is because as the exchange rate increases from $1.25 to $1.30, it takes more dollars to buy one euro, indicating that the dollar has weakened relative to the euro. Conversely, it shows that the euro has strengthened relative to the dollar, since each euro now converts to more dollars than before.

This can have various effects on the economy. For instance, a stronger euro may discourage exports by European firms to the U.S. because it means higher production costs in euros relative to the sales revenues earned in dollars. On the other hand, a weaker U.S. dollar can encourage U.S. exports because American products become cheaper for buyers using euros.