Question

What is the primary impact of a country devaluing its currency on its exports and imports?

• A. Exports become more expensive, and imports become cheaper
• B. Exports become cheaper, and imports become more expensive
• C. Both exports and imports become cheaper
• D. Both exports and imports become more expensive

Hint:

Remember: Currency devaluation boosts exports by making them cheaper abroad but discourages imports by raising their cost domestically.

Answer 1

The Correct Option is B

Explanation: Currency devaluation occurs when a country deliberately reduces the value of its currency relative to other currencies. This makes the country's goods cheaper for foreign buyers, as they need to spend less of their own currency to purchase the same quantity of exports. 
As a result, exports become more competitive and tend to increase. Conversely, imports become more expensive because more of the devalued domestic currency is required to buy foreign goods, which may reduce import demand. 
- Option (1) is incorrect because devaluation makes exports cheaper, not more expensive, and imports more expensive, not cheaper. 
- Option (3) is incorrect because devaluation does not make imports cheaper; it increases their cost in domestic currency. 
- Option (4) is incorrect because devaluation does not make exports more expensive; it reduces their price in foreign markets. 
Answer: The correct answer is option (2): Exports become cheaper, and imports become more expensive.