The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from Country Z.

Question

​The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency appreciates against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from Country Z.

Quizplus · Accepted Answer

If Country Y's currency appreciates against Country Z's currency, this means that Country Z's currency has depreciated against Country Y's currency. As Country X's currency is pegged to Country Y's currency, Country X's currency has also appreciated against Country Z's currency. This makes Country X's exports more expensive for Country Z, while making Country Z's exports cheaper for Country X. Consequently, Country X is likely to import more from Country Z but export less to Country Z. Hence, option D is the correct answer.

​The Currency of Country X Is Pegged to the Currency

The Currency of Country X Is Pegged to the Currency