The US Dollar's Effective Exchange Rate Since 2002 Steadily Weakened Up

question 76

Multiple Choice

The U.S. dollar's effective exchange rate since 2002 steadily weakened up to 2012, before rebounding somewhat. However, it didn't weaken as much against ALL currencies as it did against the currencies of the major developed countries (which include the pound and the euro) . This could be because:

• A) the U.S. government has a strong dollar policy.
• B) the large trading partners, China and Japan, did not allow their currencies to appreciate greatly against the U.S. dollar.
• C) the rate of appreciation is always somewhat greater than the rate of depreciation.
• D) the United States does not trade with some nations, so the effective rate is biased.

---

Definitions:

Cost of Capital

The necessary yield on investment initiatives for a business to uphold its market price and appeal to investors.

Interest Rates

The fee, indicated as a percentage of the principal amount, that a lender charges a borrower for the utilization of resources.

Terminal Value

An estimate of a business's value beyond the explicit forecast period and into perpetuity, often used in financial modeling to estimate the company's long-term sustainability.

Non-Normal Cash Flows

Cash inflows and outflows that do not follow a regular, predictable pattern over time.