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Exchange Rate

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Exchange Rate

by capnx » Sat Aug 15, 2009 9:29 am
The exchange rate is the ruling official rate of exchange of dollars for other currencies. It determines the value of American goods in relation to foreign goods. If the dollar is devalued in terms of other currencies, American exports (which are paid for in dollars) become cheaper to foreigners and American imports (paid for by purchasing foreign currency) become more expensive to holders of dollars.

What conclusion can be drawn from the above?

a) There are certain disadvantages for the United States economy attached to devaluation.

b) The prospect of devaluation results in a speculative outflow of funds.

c) By encouraging exports and discouraging imports, devaluation can improve the American balance of payments.

d) The difference between imports and exports is called the Trade Gap.

e) It is possible that inflation neutralizes the beneficial effects of devaluation.

[spoiler]OA: C[/spoiler]
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by ambreenss » Wed Aug 19, 2009 1:00 pm
i think its A.....what do u say ??
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by capnx » Wed Aug 19, 2009 1:08 pm
I thought it's A too, but the OA says it's wrong.

My question is, [spoiler]OA is C, but the passage says nothing about "balance of payments". Is this knowledge something that is taken for granted? I know what Balance of Payment is, but since the article didn't talk about it, I thought it's outside of the scope[/spoiler]
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Re: Exchange Rate

by shahdevine » Wed Aug 19, 2009 1:10 pm
capnx wrote:The exchange rate is the ruling official rate of exchange of dollars for other currencies. It determines the value of American goods in relation to foreign goods. If the dollar is devalued in terms of other currencies, American exports (which are paid for in dollars) become cheaper to foreigners and American imports (paid for by purchasing foreign currency) become more expensive to holders of dollars.

What conclusion can be drawn from the above?

a) There are certain disadvantages for the United States economy attached to devaluation.

b) The prospect of devaluation results in a speculative outflow of funds.

c) By encouraging exports and discouraging imports, devaluation can improve the American balance of payments.

d) The difference between imports and exports is called the Trade Gap.

e) It is possible that inflation neutralizes the beneficial effects of devaluation.

[spoiler]OA: C[/spoiler]
c

only conclusion you should pick is supported by premises given. Therefore, A,D,E are out of scope.
"balance of payment" entails net outflows between countries, that's why B is tempting. However the facts/premises given lean towards a causal relationship between imports and exports and how such activities devalue the dollar and affect America's international economic position. Therefore C.
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by shahdevine » Wed Aug 19, 2009 1:13 pm
ambreenss wrote:i think its A.....what do u say ??
Answer A requires a dramatic leap in assumption...your assigning the value of "disadvantage/advantages" to info given...we cannot do that when asked to draw a conclusion from a stimulus. Conclusion are draw from explicit signposts in the stimulus.
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by gmatmachoman » Thu Aug 20, 2009 6:14 am
The exchange rate is the ruling official rate of exchange of dollars for other currencies. It determines the value of American goods in relation to foreign goods. If the dollar is devalued in terms of other currencies, American exports (which are paid for in dollars) become cheaper to foreigners and American imports (paid for by purchasing foreign currency) become more expensive to holders of dollars.

What conclusion can be drawn from the above?

a) There are certain disadvantages for the United States economy attached to devaluation.

YES CERTAINLY SOME DISADVANTAGE IS THERE.BUT NOT CLEARLY MENTIONED THE SORT OF DISADVANTAGE.

b) The prospect of devaluation results in a speculative outflow of funds.

NOWHERE IT IS MENTIONED THAT SPECULATION COULD HAPPEN.

c) By encouraging exports and discouraging imports, devaluation can improve the American balance of payments.

RIGHTLY SAID,MORE EXPORTS AND LESS IMPORTS SHALL ALWAS BENEFIT THE NATION.IMO C

d) The difference between imports and exports is called the Trade Gap.

NOWHERE IT IS MENTIONED ABT TRADEGAP
.
e) It is possible that inflation neutralizes the beneficial effects of devaluation.

NOWHERE IT IS MENTIONED THAT INFLATION COULD HAPPEN

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by Eric77Gorm » Mon May 16, 2016 12:09 am
I will go with option A this case.
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