For a domestic exporter with all costs and output prices denoted in the domestic currency, a depreciation of the domestic currency will:

Question

BlackTom AI · Accepted Answer

Domestic-currency-denominated costs remain numerically unchanged by an exchange-rate depreciation because the depreciation only alters the relative value of currencies, not the nominal amounts recorded in domestic currency.

1) Relevant knowledge points and concepts
- Exchange-rate depreciation: the domestic currency loses value relative to foreign currency; one unit of foreign currency buys more units of domestic currency.
- Pricing currency: if an exporter sets both costs and output prices in the domestic currency, all accounting figures (costs, prices, profits in domestic currency) do not change simply because the exchange rate moves.
- Pass-through to foreign-currency prices: the foreign-currency price of the export equals the domestic price converted at the prevailing exchange rate, so depreciation changes that converted foreign price, not the domestic nominal amounts.

2) Complete reasoning process step by step
- Start with domestic cost and price expressed in domestic currency (D).
- A depreciation changes the exchange rate (D per unit of foreign currency), but does not change the domestic-numbered cost or price.
- Converting to foreign currency will change the foreign-currency price perceived by foreign buyers, but the domestic cost figure remains the same.

3) Calculations with intermediate steps (numerical example)
- Let domestic price P = 100 D and domestic cost C = 60 D.
- Initial exchange rate: 2 D per 1 foreign unit -> foreign price = 100 D / (2 D/foreign) = 50 foreign units.
- After depreciation: 4 D per 1 foreign unit (domestic weaker) -> foreign price = 100 D / (4 D/foreign) = 25 foreign units.
- Domestic cost stays C = 60 D before and after (no arithmetic change in D terms).

4) Why the correct answer is correct
- The depreciation only affects how many foreign currency units are needed to buy the domestic price; it does not change the numerical domestic-currency cost entries. Therefore “not change costs” correctly describes the effect on costs denominated in domestic currency.

5) Why the other options are incorrect
- “Raise prices for foreign consumers”: incorrect here because with domestic-currency pricing a depreciation typically lowers the foreign-currency price (see numerical example), making the good cheaper for foreigners.
- “Lower sales to foreign consumers”: not necessarily true; depreciation usually makes exports cheaper abroad and tends to increase foreign demand (unless offset by other factors).
- “All of these”: incorrect because the other listed statements are not all true simultaneously.

6) Conclusion
The correct choice is “not change costs,” matching the provided answer.

For a domestic exporter with all costs and output prices denoted in the domestic currency, a depreciation of the domestic currency will:Single choice

Similar Questions

Which would depreciate a currency?

For a domestic exporter with all costs and output prices denoted in the domestic currency, a depreciation of the domestic currency will:

Fewer foreign students want to study there. This would cause its currency to:

Which of these would cause a currency to depreciate?

Which of these would cause a currency to depreciate?

If ¥/€ falls,

Which of these would cause a currency to depreciate?

Which of these would cause a currency to depreciate?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler