Suppose the exchange rate has changed from $US1.40 per British pound to $US2.00 per British pound. This means that the
A) U.S. dollar depreciates from £0.71 per $US dollar to £0.50 per $U.S.
B) British pound depreciates against the U.S. dollar.
C) U.S. dollar can buy more British goods than before.
D) U.S. dollar appreciates from £0.50 per dollar to £0.71 per dollar.

Question

Quizplus · Accepted Answer

When the exchange rate changes from $US1.40 per British pound to $US2.00 per British pound, it means that the value of the U.S. dollar in terms of how many pounds it can buy has decreased. Initially, $1 could buy £0.71 (1/1.40), but now it can only buy £0.50 (1/2.00), indicating that the U.S. dollar has depreciated relative to the British pound.

Suppose the Exchange Rate Has Changed from $US1