What happens to a nation's balance of trade when its currency depreciates? a. imports increase while exports decrease. b. exports increase while imports increase. c. exports increase while imports decrease. d. imports decrease while exports decrease.

The correct answer is C.

When a currency depreciates against another, the goods valued in the first currency become relatively cheaper in terms of the second. By the law of demand, holders of the foreign currency will start demanding higher quantities of that product, hence the level of exports increases.

On the other hand, buying products from abroad becomes relatively more expensive for holders of the depreciated currency, therefore the amount of goods imported decreases.

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