Fluctuations in currencies' exchange rates are based on the relative changes in the supplies and demands of those currencies. Companies considering decisions regarding short-term international trade (ie, imports and exports) and long-term international investments face exchange-rate risks as a result of these changes.

A significant decline in the exchange rate of the U.S. dollar (USD) means that the USD has depreciated, and foreign currencies have appreciated. In other words, foreign entities will be able to purchase more units of the USD for less cost. This makes exports from the U.S. highly desirable because the relative cost of those exports has fallen (Choice A).

However, since the USD now purchases less, the cost of imports from foreign countries has risen relatively; consumers will have to pay more for those imports (Choice D). Accordingly, one would expect that U.S. importers will suffer from the depreciated USD (Choice B).

Things to remember:
When the U.S. currency depreciates against a foreign currency, U.S. export prices will fall and export sales will increase relatively. In other words, the value of the U.S. dollar will be less, benefitting U.S. exporters.