What does the term 'Exchange Rate' most accurately describe in the context of global economics?
A. Government spending on public projects
B. Payments not made in exchange for goods or services
C. The total production within a country's borders
D. A sudden fall in a nation's currency value
Answer (1)
The correct answer is letter D.An exchange rate is the value of one currency in terms of another. For example, if 1 US dollar is equal to 55 Philippine pesos, then the exchange rate is 1:55. This rate is important because it affects the cost of goods, travel, and international business.When the peso is weak (meaning you need more pesos to buy a dollar), imported goods become more expensive. But Filipino exports become cheaper to foreigners, which can help our exporters. When the peso is strong, imported goods are cheaper, but our exports may become too expensive for other countries.Exchange rates can change daily based on demand and supply in the foreign exchange market. Things that affect it include inflation, interest rates, political stability, and global events.Example, During the pandemic, the peso got stronger because fewer people were importing goods. But in 2022, as inflation rose and interest rates changed, the peso weakened again.
