Many large developing countries with large dollar-denominated external liabilities experienced large depreciations of their currencies between 1990 and 2003. What effects, if any, did these depreciations have on these countries' external wealth and their GDPs?
A) Both their external wealth and their GDPs fell.
B) Their external wealth fell and their GDPs rose.
C) Their external wealth rose and their GDPs fell.
D) The depreciations reduced their external wealth but had no effect on their GDPs.

Question

Quizplus · Accepted Answer

When a country's currency depreciates, its external dollar-denominated liabilities become more expensive in local currency terms, reducing its external wealth. However, a weaker currency can make a country's exports cheaper and more competitive internationally, potentially increasing export volumes and stimulating GDP growth.

Many Large Developing Countries with Large Dollar-Denominated External Liabilities Experienced