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Question 454 - CSCP discussion

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Companies with manufacturing facilities in one country are more cost-competitive in exporting goods to world markets when:

A.
the local currency is strong.
Answers
A.
the local currency is strong.
B.
the local currency is weak.
Answers
B.
the local currency is weak.
C.
the local currency is stable.
Answers
C.
the local currency is stable.
D.
the local currency is pegged to the target market.
Answers
D.
the local currency is pegged to the target market.
Suggested answer: B

Explanation:

When a country's local currency is weak, its goods become less expensive for foreign buyers, making exports more competitive in the global market. A weak local currency lowers the relative cost of production and labor, which translates into lower prices for goods sold abroad. This competitive pricing advantage can increase demand for exports and enhance the profitability of exporting companies.

Reference:

'The Impact of Exchange Rates on International Trade,' World Bank.

'Currency Depreciation and Export Competitiveness,' International Trade Journal.

asked 16/09/2024
Robinson Santos
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