Chapter 43, Problem 6MCQ

To determine

The correct option that explains the revaluation of currency means.

Answer to Problem 6MCQ

Option e is correct.

Explanation of Solution

Explanation for the correct option:

e.

Revaluation refers to the increase in the currency value depending upon the exchange rate regime’s criteria. If the currency’s value is increased then the domestic goods become expensive due to which exports are reduced and imports are increased. These decreases in exports will affect the balance of payment as currency demand will reduce the current account balance. Therefore, option e is the correct answer.

Explanation for incorrect options:

a.

If the revaluation of currency occurs, then the domestic goods will appear expensive to foreign markets. Therefore, option a is incorrect.

b.

Exports will reduce as domestic goods will become expensive. Therefore, option b is incorrect.

c.

Foreign goods will look less expensive. Therefore, option c is incorrect.

d.

Imports will increase as foreign goods are cheaper than domestic goods. Therefore, option d is incorrect.

Economics Concept Introduction

Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.