Find all School-related info fast with the new School-Specific MBA Forum

It is currently 23 Oct 2014, 05:55

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

The exchange rate is the ruling official rate of exchange of

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
TAGS:
Senior Manager
Senior Manager
User avatar
Joined: 04 Nov 2006
Posts: 267
Location: California
Followers: 1

Kudos [?]: 28 [0], given: 0

The exchange rate is the ruling official rate of exchange of [#permalink] New post 06 Jan 2007, 00:05
00:00
A
B
C
D
E

Difficulty:

(N/A)

Question Stats:

0% (00:00) correct 0% (00:00) wrong based on 0 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.
Senior Manager
Senior Manager
User avatar
Joined: 02 Sep 2006
Posts: 256
Followers: 1

Kudos [?]: 11 [0], given: 0

 [#permalink] New post 06 Jan 2007, 00:14
E...
Director
Director
User avatar
Affiliations: FRM Charter holder
Joined: 02 Dec 2006
Posts: 736
Schools: Stanford, Chicago Booth, Babson College
Followers: 7

Kudos [?]: 23 [0], given: 4

Re: CR_The exchange rate is the... [#permalink] New post 06 Jan 2007, 03:28
mm007 wrote:
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.


I would go with A. All other options have additional information.
Manager
Manager
User avatar
Joined: 03 Dec 2006
Posts: 77
Location: London
Followers: 1

Kudos [?]: 3 [0], given: 0

 [#permalink] New post 06 Jan 2007, 04:26
I'm hesitant between A &E.

Quote:
A) There are certain disadvantages for the United States economy attached to devaluation.
I don't think that the passage necessarily pertains to the U.S Economy

Quote:
E) It is possible that inflation neutralizes the beneficial effects of devaluation.
I'm gonna pick E for the word possible

Not sure.
Senior Manager
Senior Manager
User avatar
Joined: 01 Feb 2005
Posts: 274
Followers: 1

Kudos [?]: 30 [0], given: 1

 [#permalink] New post 06 Jan 2007, 04:56
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 2nd sentence clearly says that "It determines the value of American goods in relation to foreign goods. It very clearly says about American goods. Which means that a devaluation of the dollar will have an impact on economy related to devaluation.

I would pick E[/u]
Senior Manager
Senior Manager
avatar
Joined: 24 Sep 2006
Posts: 281
Followers: 1

Kudos [?]: 5 [0], given: 0

 [#permalink] New post 06 Jan 2007, 07:38
I will say C

Devaluation need not be a disadvantage
nothing is mentioned about benificial effects of inflation
_________________

AimHigher

Senior Manager
Senior Manager
User avatar
Joined: 01 Feb 2005
Posts: 274
Followers: 1

Kudos [?]: 30 [0], given: 1

 [#permalink] New post 06 Jan 2007, 09:57
I would go with A. I think I thought of A but marked E. Hope I do not do it during the exam! :)
Senior Manager
Senior Manager
avatar
Joined: 19 Jul 2006
Posts: 361
Followers: 1

Kudos [?]: 2 [0], given: 0

 [#permalink] New post 06 Jan 2007, 20:52
one more C

By encouraging exports and discouraging imports, devaluation can improve the American balance of payments
Manager
Manager
User avatar
Joined: 03 Dec 2006
Posts: 77
Location: London
Followers: 1

Kudos [?]: 3 [0], given: 0

 [#permalink] New post 07 Jan 2007, 05:42
I've ruled out C because there is no mention of the BOP in the passage. Furthermore, what if there was a surplus in the BOP?, then devaluating the dollar won't help the BOP. I also don't think that we're expected to know about it.
Intern
Intern
avatar
Joined: 21 Nov 2006
Posts: 44
Followers: 0

Kudos [?]: 4 [0], given: 0

B for me. [#permalink] New post 07 Jan 2007, 06:56
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.


Devalues currency to holders of the currency. Hence the prospect people will run for the exits and dump the dollar.

Thats my devalued 2 cents.

Eric
Senior Manager
Senior Manager
User avatar
Joined: 24 Nov 2006
Posts: 351
Followers: 1

Kudos [?]: 11 [0], given: 0

Re: CR_The exchange rate is the... [#permalink] New post 07 Jan 2007, 08:17
mm007 wrote:
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.


C, D and E introduce external info. Ruled out. B is interesting because the prospect of devaluation can indeed prompt some to buy other currencies to protect their capital. Nevertheless, A is more directly related to the stem. That imports become more expensive is automatically a disadvantage, even if the overall outcome is positive for the economy.
VP
VP
avatar
Joined: 28 Mar 2006
Posts: 1388
Followers: 2

Kudos [?]: 19 [0], given: 0

 [#permalink] New post 07 Jan 2007, 11:57
I think it is A

inflation, balance of payments, trade deficits/gaps are all external to the premises. Since we shouldnt be using our external knowledge whatsoever I would prefer A to any other choice. It doesnt go out of scope.
Intern
Intern
avatar
Joined: 21 Nov 2006
Posts: 44
Followers: 0

Kudos [?]: 4 [0], given: 0

 [#permalink] New post 07 Jan 2007, 16:39
I agree with your reasoning. A is the correct answer. It is implied, or can be concluded that higher import prices are not advantageous(to some sectors). Unless you are an american auto manufacturer!

Eric
Senior Manager
Senior Manager
avatar
Joined: 17 Aug 2005
Posts: 394
Location: Boston, MA
Followers: 1

Kudos [?]: 10 [0], given: 0

Re: CR_The exchange rate is the... [#permalink] New post 08 Jan 2007, 16:40
mm007 wrote:
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.

A-while true, this is not supported by the statements made in the stem.
B-not supported. even if the dollar is devalued, exports could be so much greater than imports that we can not necessarily speculate an outflow of funds.
D-who cares
E-Inflation is Out of Scope

My answer is C.
definitely supported by the stem. if dollar is devalued, US can try to increase exports and decrease imports in order to IMPROVE the bal of payments. I dont think this arg assumes that the reader knows the comprehensive measures and components of the BOP, hence any background info is not necessary, Like what is in the Current Account.

OA please>????????????????
VP
VP
avatar
Joined: 28 Mar 2006
Posts: 1388
Followers: 2

Kudos [?]: 19 [0], given: 0

Re: CR_The exchange rate is the... [#permalink] New post 08 Jan 2007, 19:00
buckkitty wrote:
mm007 wrote:
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.

A-while true, this is not supported by the statements made in the stem.
B-not supported. even if the dollar is devalued, exports could be so much greater than imports that we can not necessarily speculate an outflow of funds.
D-who cares
E-Inflation is Out of Scope

My answer is C.
definitely supported by the stem. if dollar is devalued, US can try to increase exports and decrease imports in order to IMPROVE the bal of payments. I dont think this arg assumes that the reader knows the comprehensive measures and components of the BOP, hence any background info is not necessary, Like what is in the Current Account.

OA please>????????????????


Where is balance of payments defined in the stem/premise?
Intern
Intern
avatar
Joined: 02 Jan 2007
Posts: 41
Followers: 0

Kudos [?]: 2 [0], given: 0

 [#permalink] New post 08 Jan 2007, 23:25
I am stuck between A or B. I am an engineer and know very little about devaluation and currency exchange. But I think that actually helps me eliminate the other choices as they bring in new/external info. Of A and B, I am leaning more towards A as it does not step out the of premise of the passage.
Senior Manager
Senior Manager
avatar
Joined: 17 Aug 2005
Posts: 394
Location: Boston, MA
Followers: 1

Kudos [?]: 10 [0], given: 0

Re: CR_The exchange rate is the... [#permalink] New post 09 Jan 2007, 06:43
trivikram wrote:
buckkitty wrote:
mm007 wrote:
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.

A-while true, this is not supported by the statements made in the stem.
B-not supported. even if the dollar is devalued, exports could be so much greater than imports that we can not necessarily speculate an outflow of funds.
D-who cares
E-Inflation is Out of Scope

My answer is C.
definitely supported by the stem. if dollar is devalued, US can try to increase exports and decrease imports in order to IMPROVE the bal of payments. I dont think this arg assumes that the reader knows the comprehensive measures and components of the BOP, hence any background info is not necessary, Like what is in the Current Account.

OA please>????????????????


Where is balance of payments defined in the stem/premise?


balance of payments >> Exports-paid for with dollars vs. Imports-paid for by foreign currency. To the U.S. this exchange results in a balance of payments... In vs Out.

I dont this answer C requires the reader to go beyond what is stated and implied in the stem - it is all right there.
Manager
Manager
avatar
Joined: 20 Dec 2004
Posts: 181
Followers: 2

Kudos [?]: 13 [0], given: 0

 [#permalink] New post 09 Jan 2007, 06:49
I will pick A. That's the best choice among the given choices. All others have extraneous information which cannot be concluded from the set of arguments.
_________________

Regards

Subhen

VP
VP
avatar
Joined: 28 Mar 2006
Posts: 1388
Followers: 2

Kudos [?]: 19 [0], given: 0

Re: CR_The exchange rate is the... [#permalink] New post 09 Jan 2007, 18:04
buckkitty wrote:
trivikram wrote:
buckkitty wrote:
mm007 wrote:
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.

A-while true, this is not supported by the statements made in the stem.
B-not supported. even if the dollar is devalued, exports could be so much greater than imports that we can not necessarily speculate an outflow of funds.
D-who cares
E-Inflation is Out of Scope

My answer is C.
definitely supported by the stem. if dollar is devalued, US can try to increase exports and decrease imports in order to IMPROVE the bal of payments. I dont think this arg assumes that the reader knows the comprehensive measures and components of the BOP, hence any background info is not necessary, Like what is in the Current Account.

OA please>????????????????


Where is balance of payments defined in the stem/premise?


balance of payments >> Exports-paid for with dollars vs. Imports-paid for by foreign currency. To the U.S. this exchange results in a balance of payments... In vs Out.

I dont this answer C requires the reader to go beyond what is stated and implied in the stem - it is all right there.


Absolutely ...But we are not told that "balance of payments" is thus arrived..nor can we assume about it from the premise and conclusion....If we bring in our external knowledge then we can define perfectly as you mentioned. I still go for A :)
Senior Manager
Senior Manager
avatar
Joined: 17 Aug 2005
Posts: 394
Location: Boston, MA
Followers: 1

Kudos [?]: 10 [0], given: 0

 [#permalink] New post 10 Jan 2007, 06:42
Fair enough. I still stand by C though :wink:

Can we get an OA for this one/?????????
  [#permalink] 10 Jan 2007, 06:42
    Similar topics Author Replies Last post
Similar
Topics:
exchange with vs. exchange for hirendhanak 1 03 Oct 2010, 22:31
1 The exchange rate between the currency of Country X and that cialit0506 7 11 Aug 2009, 06:15
2 Loans for US students studying abroad -- what exchange rate? prashok 11 25 Dec 2008, 03:39
Exchange reply2spg 7 14 Oct 2008, 06:35
Essay Exchanges? kryzak 25 09 Sep 2007, 23:17
Display posts from previous: Sort by

The exchange rate is the ruling official rate of exchange of

  Question banks Downloads My Bookmarks Reviews Important topics  

Go to page    1   2    Next  [ 25 posts ] 



GMAT Club MBA Forum Home| About| Privacy Policy| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group and phpBB SEO

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.