The currency of the country of Venadia falls sharply in value against the currency of Lutetia,a neighboring country.Which of the following is a consequence of this exchange rate movement?

Question

Quizplus · Accepted Answer

When the currency of one country falls in value against another country's currency, the first country's goods become cheaper in the second country. This means that Venadia's exports to Lutetia will become cheaper, leading to an increase in demand for Venadian goods. Therefore, option B is the correct answer. Option A is incorrect because Lutetia's products will become more expensive in Venadia, which makes them less competitive. Option C is incorrect because Venadia's products will become cheaper in Lutetia. Option D is incorrect because there will be a change in the volume and direction of trade due to the change in the exchange rate. Option E is incorrect because Lutetia's exports to Venadia will become more expensive.

The Currency of the Country of Venadia Falls Sharply in Value