Suppose the current exchange rate between the United States and Japan is 3.9 yen per dollar while the equilibrium exchange rate is 3.3 yen per dollar. It is likely that:

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When the exchange rate between two countries is greater than the equilibrium exchange rate (in this case, when the exchange rate is 3.9 yen per dollar, and the equilibrium exchange rate is 3.3 yen per dollar), the currency of the country with the higher exchange rate is considered overvalued, and the currency of the country with the lower exchange rate is considered undervalued. A depreciation of the dollar (meaning it becomes weaker relative to the yen) would result in a decrease in the price of U.S. goods and services relative to Japanese goods and services, making imports into the United States more expensive. This would lead to a decrease in the quantity of imports into the United States.

Suppose the Current Exchange Rate Between the United States and Japan