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Question
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Posted 8 months ago

Bill is traveling to Russia from New Zealand for the World Cup to root for New Zealand in their match against Fiji. The currency of New Zealand is the dollar, and the currency of Russia is the ruble.

If Bill hears that the New Zealand dollar has depreciated against the Russian ruble, which of the following best describes the impact the depreciation has on his trip?

Choose 1 answer:
(A) The value of the dollar and the ruble are now equal to each other
(B) The number of dollars it takes to buy a ruble is higher than the number of rubles it takes to buy a dollar
(c) The number of dollars it takes to buy a ruble is smaller than the number of rubles it takes to buy a dollar
(D) His purchasing power has increased
(E) His purchasing power has decreased.
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Answer from Sia
Posted 8 months ago
Solution by Steps
step 1
Understand the concept of currency depreciation: When the New Zealand dollar depreciates against the Russian ruble, it means that each dollar is worth fewer rubles than before
step 2
Analyze the impact on purchasing power: Depreciation of Bill's home currency (NZD) against the currency of the country he is visiting (RUB) means that he will need more NZD to get the same amount of RUB, thus his purchasing power decreases
step 3
Eliminate incorrect answer choices: (A) is incorrect because equal value is not implied by depreciation; (B) is incorrect because it describes the opposite situation; (C) is incorrect because it also describes the opposite situation; (D) is incorrect because purchasing power increases when currency appreciates, not depreciates
Answer
E
Key Concept
Currency Depreciation and Purchasing Power
Explanation
When a currency depreciates, the purchasing power of that currency decreases in the foreign exchange market, meaning more of the depreciated currency is needed to buy the same amount of foreign currency.

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