How Does an Increase in the Real Exchange Rate Affect

question 19

Multiple Choice

How does an increase in the real exchange rate affect exports and imports?

• A)Exports increase;imports decrease.
• B)Exports decrease;imports increase.
• C)Exports increase;imports change ambiguously.
• D)Exports change ambiguously;imports decrease.
• E)Exports increase;imports are constant.

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Definitions:

Underlying Asset

Refers to an asset (e.g., stocks, bonds, commodities) on which a derivative's value is based.

European Option

An option that can only be exercised at the end of its life, at its expiration date, unlike American options which can be exercised at any time up to the expiration date.

Expiration Date

The specific date on which an option contract becomes void and the rights to exercise it cease.

Right to Buy

A policy or statute that allows tenants to purchase the home they are renting, often at a discount, most commonly associated with public housing in the UK.