If the European Union (EU) were to devalue the euro, which of the following would most likely occur?

• A. EU exports would become more competitive in international markets.
• B. The euro would appreciate relative to other major currencies.
• C. The purchasing power of EU consumers for imported goods would increase.
• D. Foreign investment in the EU would immediately decrease due to higher currency value.

Answer: (A)

Verified step by step guidance

1. Understand what it means for a currency to be devalued: a devaluation means the currency loses value relative to other currencies.
2. Recognize that when the euro is devalued, it becomes cheaper for foreign buyers to purchase goods priced in euros, making EU exports more competitive internationally.
3. Analyze the effect on the euro's value: a devaluation means the euro depreciates, not appreciates, relative to other currencies.
4. Consider the impact on purchasing power: a weaker euro means EU consumers will find imported goods more expensive, so their purchasing power for imports decreases.
5. Evaluate foreign investment effects: a lower currency value can make investments cheaper for foreigners, potentially increasing foreign investment rather than decreasing it immediately.