The U.S.economy is experiencing large trade deficits.Suppose that the U.S.considers devaluing its dollar against a foreign currency to improve the trade balance.What type of currency contracting would improve the U.S.trade deficit?
A) The U.S. import contracts are written in foreign currency and the U.S. export contracts are written in dollar.
B) The U.S. import contracts are written in dollar and the U.S. export contracts are written in foreign currency.
C) Both of the U.S. import and export contracts are written in dollar.
D) Both of the U.S. import and export contracts are written in foreign currency.

Question

Quizplus · Accepted Answer

If the U.S. devalues its dollar, it becomes cheaper for foreign buyers to purchase goods and services from the U.S. Therefore, if U.S. export contracts are written in foreign currency, U.S. exporters will receive more dollars in exchange for the same amount of foreign currency, making their goods and services less expensive for foreign buyers. On the other hand, if U.S. import contracts are written in dollar, foreign goods and services become more expensive for U.S. buyers, leading to a decrease in imports and an improvement in the trade balance.

The USEconomy Is Experiencing Large Trade Deficits