Question

Studies have shown that countries experiencing currency depreciation often see an increase in exports and a decrease in imports. This phenomenon can be attributed to the fact that a weaker currency makes domestic goods relatively cheaper for foreign buyers while making foreign goods relatively more expensive for domestic consumers. However, not all countries experiencing currency depreciation witness the same level of impact on their trade balance. Analysis of data from various countries reveals that nations with a larger share of export-driven economies tend to benefit more from currency depreciation compared to those with a higher reliance on imported goods. Which of the following conclusions can be properly drawn from the information provided above?

• A. Countries heavily reliant on exports are immune to the effects of currency depreciation on their trade balance.
• B. Currency depreciation could lead to a decrease in both exports and imports for some countries.
• C. The impact of currency depreciation on a country's trade balance depends on its trade composition and reliance on imports.
• D. Countries with a larger share of export-driven economies are more likely to experience currency appreciation rather than depreciation.
• E. Currency depreciation has a significant impact on a country's trade balance, regardless of its reliance on imports or exports.

Hint:

In inference questions, look for an answer choice that accurately synthesizes the main points of the passage without going beyond the information provided. Be wary of extreme words like "all," "never," or "immune."

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
This is an inference question. We need to identify the conclusion that is best supported by the facts presented in the passage. The correct answer should be a direct, logical consequence of the information given.
Step 2: Detailed Explanation:
Let's summarize the key points of the passage:

General Rule: Currency depreciation typically increases exports and decreases imports.
Qualification: "However, not all countries... witness the same level of impact."
Specific Finding: The effect is different for export-driven economies versus import-reliant economies.
The main thrust of the passage is to start with a general economic principle and then refine it by showing that its effect is variable and depends on the specific economic structure of a country.
Let's evaluate the options:

(A) "Immune" is too strong. The passage says export-reliant countries "benefit more," not that they are completely unaffected or immune.
(B) This contradicts the passage, which states that depreciation leads to an \textit{increase} in exports.
(C) This is a perfect summary of the passage's main point. The "trade composition" (the mix of exports and imports) and "reliance on imports" are precisely the factors the passage identifies as determining the impact of currency depreciation.
(D) The passage discusses the \textit{effects} of currency depreciation, not what causes it or makes it more likely. This is outside the scope of the text.
(E) This directly contradicts the central point of the passage, which is that the impact is \textit{not} the same for everyone and \textit{does} depend on the reliance on imports and exports.
Step 3: Final Answer:
The passage explicitly states that the impact of currency depreciation varies and that this variation is related to whether a country's economy is driven by exports or reliant on imports. Option (C) accurately captures this conclusion.