A revaluation of a currency, holding everything else constant:

Question

Quizplus · Accepted Answer

A currency revaluation makes the domestic currency stronger relative to other currencies, making foreign goods relatively cheaper in the domestic market compared to domestically produced goods, which makes foreign goods more attractive in the domestic economy.

Answer: C 
 A currency revaluation makes exports more expensive and imports less expensive. This makes it difficult for domestic producers to export goods but cheaper to import them, leading to a decrease in exports, an increase in imports, and, therefore, a surplus in the balance of payments account.

Answer: D 
 A merchandise trade surplus occurs when a country exports more goods than it imports. A currency revaluation can help increase the price of exports in foreign currency, making them more expensive, and decrease the price of imports in the domestic currency, making them relatively cheaper. This can, therefore, lead to an increase in exports, a decrease in imports, and ultimately a merchandise trade surplus.

Therefore, the correct answers are A, C, and D.

A Revaluation of a Currency, Holding Everything Else Constant