Explanation:
The exchange rate moved from EUR/USD 1.30 to EUR/USD 1.43, meaning it now takes more US dollars to purchase one euro. This indicates that the EUR has strengthened (appreciated) and the USD has weakened (depreciated).
Option A (TRUE): When the USD weakens, American goods (priced in USD) become less expensive for European buyers who must convert their stronger euros into dollars. This makes US exports more competitive and benefits US exporters.
Option B (FALSE): The opposite is true — American goods are cheaper, not more expensive, to European buyers when the USD weakens.
Option C (FALSE): When the EUR strengthens (and USD weakens), European goods become more expensive (not cheaper) to American buyers, hurting (not benefiting) European manufacturers selling in the US.
Option D (FALSE): While interest rate parity and arbitrage do influence exchange rates over the long term, they do not completely nullify the impact of currency movements on un-hedged importers and exporters. Exchange rate volatility creates real economic effects on trade competitiveness.
Therefore, the correct answer is A.
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Question 191.2. Since the start of 2011, the spot foreign currency exchange rate between the U.S. dollar and Euro has moved from about EUR/USD $1.30 to about EUR/USD $1.43 (EUR/USD = base/quoted currencies). Which of the following is TRUE?
A
American goods are cheaper to European buyers (benefiting US exporters)
B
American goods are more expensive to European buyers (hurting US exporters)
C
European manufacturers benefit in American markets as their goods become cheaper to American buyers
D
Interest rate parity and arbitrage tend to approximately nullify the impact of the currency exchange rates on even un-hedged importers and exporters
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