Help the confused exchange student choose the most natural reply to his new roommate's casual greeting.

Roommate: "Hey, what's up?"
Exchange student: "_____"

The correct answer is Not much, just relaxing.

"What's up?" is a very common, casual English greeting that means "What is happening in your life right now?" or "What are you doing?"

Because it asks what is happening (not how you are), we don't usually reply with "I'm fine." The most natural fixed expression is to say "Not much" or "Nothing much," followed by whatever you are currently doing!