A weak home currency may not be a perfect solution to correct a balance-of-trade deficit because:
A) it reduces the prices of imports paid by local companies.
B) it increases the prices of exports by local companies.
C) it prevents international trade transactions from being prearranged.
D) foreign companies may reduce the prices of their products to stay competitive.

Question

​A weak home currency may not be a perfect solution to correct a balance-of-trade deficit because:
A) ​it reduces the prices of imports paid by local companies.
B) ​it increases the prices of exports by local companies.
C) ​it prevents international trade transactions from being prearranged.
D) ​foreign companies may reduce the prices of their products to stay competitive.

Quizplus · Accepted Answer

A weak home currency makes imports more expensive and exports cheaper in foreign markets, which can help correct a trade deficit. However, foreign companies might lower their prices to maintain competitiveness, which can mitigate the expected benefits of a weaker home currency on the trade balance.

​A Weak Home Currency May Not Be a Perfect Solution

A Weak Home Currency May Not Be a Perfect Solution