Currency Depreciation Boosts Export Competitiveness

Steps:

• A fall in foreign exchange rate means the country's currency depreciates relative to others.
• Depreciation lowers the price of the country's goods in foreign currencies.
• Foreign buyers find these goods cheaper, increasing demand for exports.
• This makes the country's exports more competitive internationally.

Why D is correct:

• By definition, depreciation reduces the foreign currency price of exports, enhancing their competitiveness as per the exchange rate's impact on trade balances.

Why the others are wrong:

• A: Money supply is unaffected directly by exchange rates; it's controlled by monetary policy.
• B: Purchasing power falls for domestic consumers buying foreign goods.
• C: Imports become more expensive as more domestic currency is needed to buy foreign goods.

Final answer: D