Question3 Xinyi has seen the value of the Euro change from $1.014 to $1.038 against the US Dollar in the last three months. In this case, the US Dollar has ___________________ and the Euro has ___________________. depreciated; depreciated appreciated; depreciated depreciated; appreciated appreciated; appreciated cannot determine without further information about other currency pairs ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

To understand currency movements, consider what the quoted price means: the euro is priced in US dollars. If the euro’s price rises from 1.014 USD to 1.038 USD, it costs more dollars to buy one euro, indicating that the euro has strengthened (appreciated) and the dollar has weakened (depreciated).

Option 1: 'depreciated; depreciated' — This would imply both currencies lost value against the other, which contradicts the observed rise in the euro’s price in USD terms. Therefore, this is false.

Option 2: 'appreciated; depreciated' — This says the euro appreciated while the dollar depreciated, which aligns with the euro strengthening against the dollar. However, it assigns depreciation to the dollar in the opposite direction of the observed interaction, making this phrasing inconsistent with the standard two-currency move where one appreciates as the other depreciates. This is misleading in this context.

Option 3: 'depreciated; appreciated' — This matches the correct interpretation: the euro has appreciated (its price in USD rose from 1.014 to 1.038), and the dollar has depreciated as a result. The two movements are opposites and correctly describe the situation.

Option 4: 'appreciated; appreciated' — Claiming both currencies appreciated against each other is impossible in a standard two-currency pair; this would violate basic exchange-rate mechanics. Hence, this is incorrect.

Option 5: 'cannot determine without further information about other currency pairs' — For a direct USD/EUR quote, the movement from 1.014 to 1.038 directly indicates euro appreciation and dollar depreciation, so no additional information is needed. This statement is unnecessary and incorrect in this context.

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