If people thought that many banks in a certain country were at or near the point of bankruptcy,then that country's real exchange rate
A) and net exports would rise.
B) would rise and net exports would fall.
C) would fall and net exports would rise.
D) and net exports would fall.

Question

Quizplus · Accepted Answer

If people think many banks in a certain country are at or near the point of bankruptcy, they will become less willing to hold the currency of that country, causing a decrease in the demand for the currency and a depreciation of the real exchange rate. This depreciation makes exports cheaper and more attractive to foreign buyers, therefore leading to an increase in net exports.

If People Thought That Many Banks in a Certain Country