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The exchange rate is the ruling official rate of exchange of dollars

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Bunuel
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The exchange rate is the ruling official rate of exchange of dollars [#permalink] New post   02 Sep 2019, 02:27
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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.
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C
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sarthaknash90
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Re: The exchange rate is the ruling official rate of exchange of dollars [#permalink] New post   02 Sep 2019, 16:22
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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.

Can you please explain why A is wrong
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Re: The exchange rate is the ruling official rate of exchange of dollars [#permalink] New post   03 Sep 2019, 00:09
Bunuel 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.


Was stuck between B and C. Ended up choosing B. Is B wrong because it is out of scope or presents new information?
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Re: The exchange rate is the ruling official rate of exchange of dollars [#permalink] New post   01 Oct 2019, 22:30
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Bunuel 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.


Official Explanation



(C)

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 that if there is devaluation of the dollar, American imports will become more expensive, this will not necessarily be a disadvantage for the U.S. 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 dealt with in the paragraph. Alternatives (D) and (E) are both helpful pieces of information, but they cannot be concluded from the given text.
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Re: The exchange rate is the ruling official rate of exchange of dollars [#permalink] New post   11 Nov 2020, 01:44
For the people who did not understand what "balance of payment" means,
"The balance of payments of a country is the difference between all money flowing into the country in a particular period of time and the outflow of money to the rest of the world."

So, if exports are encouraged and increased while imports are discouraged and reduced, naturally the balance of payments will increase.
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Re: The exchange rate is the ruling official rate of exchange of dollars [#permalink] New post   27 Nov 2020, 05:06
It will be great if anyone can explain why C is right and A is wrong.

I found A to be much appropriate as there can surely be certain disadvantage to economy attached to devaluation.

C is also good but i don't think we can conclude this answer from the passage information alone.
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Re: The exchange rate is the ruling official rate of exchange of dollars [#permalink]
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