Exchange rate quotations can be quoted in two ways, direct quotation and indirect quotation. Direct quotation is when the one unit of foreign currency is expressed in terms of domestic currency. Similarly, the indirect quotation is when one unit of domestic currency is expressed in terms of foreign currency.

a)If the Euro depreciates against the US dollar, can a dollar buy more or fewer euros as a result? Explain. (2 Marks)

b)If the United States imports more goods from abroad than it exports, foreigners will tend to have a surplus of U.S. dollars. What will this do to the value of the dollar with respect to foreign currencies? What is the corresponding effect on foreign investments in the United States? (2 Marks)