How must currency contracts be structured for a currency devaluation to have a worsening effect on the balance of trade?
A) Export contracts in domestic currency and import contracts in foreign currency
B) Export contracts in foreign currency and import contracts in domestic currency
C) Both contracts in domestic currency
D) Both contracts in foreign currency

Question

Quizplus · Accepted Answer

If export contracts are in domestic currency while import contracts are in foreign currency, a currency devaluation means that the import contracts will increase in cost, while the revenue from export contracts will remain the same or increase. This will incentivize domestic producers to sell more in the foreign market and import less, thus improving the balance of trade.

How Must Currency Contracts Be Structured for a Currency Devaluation