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Question
Microeconomics
Posted 9 months ago

The exchange rate of the Guatemalan quetzal to the U.S. dollar is 10 quetzal per dollar.

If the exchange rate changes to 5 quetzal per dollar, what happened to the value of the quetzal and what happens to Guatemala's exports?

Choose 1 answer:
A) The quetzal appreciated and its exports will increase.
(B) The quetzal depreciated and its exports will increase.
(c) The quetzal depreciated and its exports are unaffected.
(D) The quetzal appreciated and its exports will increase.
(E) The quetzal appreciated and its exports will decrease.
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Answer from Sia
Posted 9 months ago
Solution
a
Exchange Rate Change: The initial exchange rate is 10 quetzal per dollar, and it changes to 5 quetzal per dollar. This means that fewer quetzals are now needed to buy one dollar
b
Currency Appreciation: When fewer units of a currency are needed to purchase one unit of another currency, the first currency has appreciated. Therefore, the quetzal has appreciated
c
Impact on Exports: When a country's currency appreciates, its goods become more expensive for foreign buyers. This typically leads to a decrease in exports
Answer
(E) The quetzal appreciated and its exports will decrease.
Key Concept
Currency Appreciation
Explanation
When the exchange rate changes from 10 quetzal per dollar to 5 quetzal per dollar, the quetzal appreciates. An appreciated currency makes a country's exports more expensive for foreign buyers, leading to a decrease in exports.

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