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The exchange rate is the ruling official rate of exchange of

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The exchange rate is the ruling official rate of exchange of [#permalink]

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06 Jan 2007, 01:05
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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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06 Jan 2007, 01:14
E...

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Re: CR_The exchange rate is the... [#permalink]

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06 Jan 2007, 04:28
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.

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06 Jan 2007, 05:26
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.

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06 Jan 2007, 05:56
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]

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06 Jan 2007, 08:38
I will say C

Devaluation need not be a disadvantage
nothing is mentioned about benificial effects of inflation
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06 Jan 2007, 10:57
I would go with A. I think I thought of A but marked E. Hope I do not do it during the exam!

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06 Jan 2007, 21:52
one more C

By encouraging exports and discouraging imports, devaluation can improve the American balance of payments

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07 Jan 2007, 06:42
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.

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07 Jan 2007, 07:56
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

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Re: CR_The exchange rate is the... [#permalink]

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07 Jan 2007, 09:17
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.

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07 Jan 2007, 12:57
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.

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07 Jan 2007, 17:39
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

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Re: CR_The exchange rate is the... [#permalink]

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08 Jan 2007, 17:40
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

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.

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Re: CR_The exchange rate is the... [#permalink]

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08 Jan 2007, 20:00
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

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.

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

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09 Jan 2007, 00:25
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.

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Re: CR_The exchange rate is the... [#permalink]

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09 Jan 2007, 07:43
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

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.

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.

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09 Jan 2007, 07:49
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.
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Re: CR_The exchange rate is the... [#permalink]

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09 Jan 2007, 19:04
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

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.

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

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10 Jan 2007, 07:42
Fair enough. I still stand by C though

Can we get an OA for this one/?????????

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10 Jan 2007, 07:42

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