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The exchange rate is the ruling official rate of exchange of [#permalink]
23 Dec 2003, 17:51
33% (01:03) correct
66% (01:00) wrong based on 3 sessions
The exchange rate is the ruling official rate of exchange of dollars for other currencies. It determines the value of American goods in relation to foreign goods. If the dollar is devalued in terms of other currencies, American exports (which are paid for in dollars) become cheaper to foreigners and American imports (paid for by purchasing foreign currency) become more expensive to holders of dollars.
What conclusion can be drawn from the above?
A) There are certain disadvantages for the United States economy attached to devaluation.
B) The prospect of devaluation results in a speculative outflow of funds.
C) By encouraging exports and discouraging imports, devaluation can improve the American balance of payments.
D) The difference between imports and exports is called the Trade Gap.
E) It is possible that inflation neutralizes the beneficial effects of devaluation.
The best conclusion that can be drawn from the statement is one that sums up the facts that are given in one sentence; thus, (C) is the best answer. Although the given paragraph states if there is devaluation of the dollar, American imports will become more expensive, this will not necessarily be a disadvantage for the US economy. Hence, (A) is not appropriate. Alternative (B) is also inappropriate, because it highlights a disadvantage that may arise from the expectation of devaluation, but which is not dealth with in the paragraph. Alternatives (D) and (E) are both helpful pieces of information, but they cannot be concluded from the given text.