When the U.S. dollar appreciates in the foreign exchange market, it means that the dollar has increased in value compared to other currencies. This can have significant effects on trade dynamics.
A. American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans: This statement is true. An appreciation of the dollar means that it takes fewer foreign currencies to buy U.S. goods, making American products more affordable for buyers abroad. Conversely, since foreign currencies have weakened against the dollar, imported goods will become more expensive for Americans.
B. U.S. exports will increase: This statement is generally false. While American goods may become cheaper for foreign buyers, the overall appreciation of the dollar can lead to a decrease in export competitiveness. When the dollar is strong, foreign buyers might seek cheaper alternatives from other countries.
C. Neither the price of U.S. exports nor imports will change: This statement is also false. The appreciation of the dollar directly affects prices. U.S. goods become more expensive when priced in foreign currencies, and imported goods become cheaper in dollar terms. The trade balance is likely to shift as a result.
In summary, when the U.S. dollar appreciates, American goods become less competitive abroad, and U.S. imports become more attractive, which can lead to a trade deficit.