The U.S. dollar's effective exchange rate since 2002 steadily weakened up to 2012, before rebounding somewhat. However, it didn't weaken as much against ALL currencies as it did against the currencies of the major developed countries (which include the pound and the euro). This could be because:
A) the U.S. government has a strong dollar policy.
B) the large trading partners, China and Japan, did not allow their currencies to appreciate greatly against the U.S. dollar.
C) the rate of appreciation is always somewhat greater than the rate of depreciation.
D) the United States does not trade with some nations, so the effective rate is biased.

Question

Quizplus · Accepted Answer

China and Japan, as two of the United States' largest trading partners, have policies to prevent their currencies from appreciating greatly against the U.S. dollar, which could explain why the U.S. dollar did not weaken as much against all currencies. Additionally, the U.S. government's policy regarding the U.S. dollar is not strong enough to prevent fluctuations in the exchange rate. Option A is therefore incorrect. Option C is a general statement that does not directly address the question. Option D is not relevant to the question.

The US Dollar's Effective Exchange Rate Since 2002 Steadily Weakened Up