You are made better off in which of the following situations? A) you borrow 10,0

Question

You are made better off in which of the following situations?

A) you borrow 10,000 pesos, you earn income in dollars, the dollar depreciates against the peso, you must pay back the loan in pesos

B) you borrow $10,000, you earn income in pesos, the dollar depreciates against the peso, you must pay back the loan in dollars

C) you borrow $10,000, you earn income in pesos, the dollar appreciates against the peso, you must pay back the loan in dollars

D) you borrow 10,000 pesos, you earn income in pesos, the dollar depreciates against the peso, you must pay back the loan in pesos

Explanation / Answer

B) you borrow $10,000, you earn income in pesos, the dollar depreciates against the peso, you must pay back the loan in dollars.

Explanation: Since the dollar depreciates against peso, it means the value of dollar decreases and the persos has to repay the loan in dollar means the pays an under valued currency against peso.Therefore, the person is better off.

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