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JAMB Economics 1990 Question 37

Question 37

Balance of Payments and Exchange Rates

Under a system of freely floating exchange rates, an increase in the international value of a country's currency will cause

  1. A.its exports to rise
  2. B.its imports to rise
  3. C.gold to flow into that country
  4. D.its currency to be in surplus
Show the answer and explanation

Answer: B (its imports to rise)

Explanation

A stronger currency makes foreign goods cheaper at home and home goods dearer abroad, so imports rise.