If the US Dollar Appreciates in the Foreign Exchange Market

question 21

Multiple Choice

If the U.S. dollar appreciates in the foreign exchange market,

• A) American goods will become more expensive for foreign buyers and foreign goods will be cheaper for Americans.
• B) American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans.
• C) American goods will become more expensive for foreign buyers and foreign goods will be more expensive for Americans.
• D) American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans.
• E) neither the price of U.S. exports nor the price of U.S. imports will change.

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Definitions:

Depreciation Tax Shield

A reduction in taxable income resulting from the ability to deduct depreciation expenses, thereby lowering the tax liability for a business.

CCA Deduction

Stands for Capital Cost Allowance deduction, a tax deduction in certain jurisdictions that allows businesses to deduct the depreciated value of capital assets.

Corporate Tax Rate

The tax rate imposed on the net income of a corporation by the government.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income, such as the interest on debt.