Question

if the exchange rate is decreasing we can say: a. both the dollar and the foreign currency are appreciating b. both the dollar and the foreign currency are depreciating c. the dollar is appreciating and the foreign currency is depreciating d. the dollar is depreciating and the foreign currency is appreciating e. none of the above

Answer 1

If the exchange rate is decreasing we can say:

d. the dollar is depreciating and the foreign currency is appreciating.

A decrease in exchange rate means that the home currency is worth less as compared to the currencies of other countries i.e. we have to give (pay) more of home currency (dollar) to get a unit of foreign currency. So we can say that the dollar is depreciating and comparatively foreign currency is appreciating. When there is a depreciation, and the exchange rate goes down. Exports will be cheaper. Imports will become more expensive.