When a country's currency is devalued, this ____ the cost of foreign goods and ____ the cost of domestic goods to foreign firms.
A) increases; decreases
B) reduces; reduces
C) decreases; increases
D) neutralizes; raises
E) neutralizes; decreases

Question

Quizplus · Accepted Answer

When a country's currency is devalued, it becomes cheaper in terms of foreign currencies. This makes foreign goods more expensive for residents of the devaluing country (since they have to spend more of their now less valuable currency to buy the same amount of foreign currency), and domestic goods become cheaper for foreign firms (since they can now buy more with their stronger currency).

When a Country's Currency Is Devalued, This ____ the Cost