The exchange rate is the rulling official rate of exchange of dollars for other currencies. It determines the value of American goods in relation to foreign goods. If the dollar is devalued in terms of other currencies, American exports (which are paid for in dollars) become cheaper to foreigners and American imports (paid for by purchasing foreign currency) become more expensive to holders of dollars. What conclusion can be drawn from the above?

A There are certain disadvantages for the United States economy attached to devaluation.

B The prospect of devaluation results in a speculative outflow of funds.

C By encouraging exports and discouraging imports, devaluation can improve the American balance of payments.

D The difference between the exports and imports is called the trade gap.

Correct Answer: Option C