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5) When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar, the euro has A) appreciated; appreciated B) depreciated; appreciated C) appreciated; depreciated D) depreciated; depreciated

Ask by Bright Peters. in Saudi Arabia
Mar 09,2025

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Answer

The euro has depreciated; depreciated.

Solution

The exchange rate is given in terms of euros per dollar. Initially, the rate is \[ 1.0 \; \text{euros per dollar} \] which means that \[ 1 \; \text{euro} = \frac{1}{1.0} = 1 \; \text{dollar}. \] When the rate changes to \[ 1.2 \; \text{euros per dollar}, \] this implies that one dollar now costs 1.2 euros. Inverting the rate, we find the value of one euro in dollars: \[ 1 \; \text{euro} = \frac{1}{1.2} \approx 0.833 \; \text{dollars}. \] Thus, the value of the euro has fallen from 1 dollar to approximately 0.833 dollars. This decrease in the dollar value of the euro means the euro has depreciated relative to the dollar. Since both parts of the answer use the same language (appreciated or depreciated), the correct answer is: - The euro has depreciated; depreciated. Therefore, the answer is: \[ \textbf{D) depreciated; depreciated.} \]

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When the exchange rate changes from 1.0 euros to the dollar to 1.2 euros to the dollar, it means that it now takes more euros to buy one dollar. This indicates that the euro has depreciated in value compared to the dollar because it costs more euros to acquire the same amount of dollars. Hence, the correct answer would be B) depreciated; appreciated. In real-world currency exchange, this can impact travelers, importers, and exporters. If you're traveling from Europe to the U.S., a depreciated euro means your euros spend less, giving you less buying power in the States. Conversely, if you’re an exporter based in Europe, you might benefit from a weaker euro since your goods become cheaper for American buyers, potentially increasing your sales.

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