For example, there is an increase in international travel by Indians. Arrange the effect of the same on the domestic currency in a sequential manner ?

(A). Demand curve shifts upward and right to the original demand curve.
(B). Demand for foreign goods and services increases.
(C). Depreciation of domestic currency (rupees) in terms of foreign currency (dollars).
(D). The value of rupees in terms of dollars has fallen and value of dollar in terms of rupees has risen.

Choose the correct answer from the options given below:

(B), (A), (D), (C)

The correct answer is Option (3) → (B), (A), (D), (C) 

• Demand for foreign goods and services increases (B): When Indians travel abroad, they consume foreign goods and services (e.g., hotel stays, meals, local transportation). This directly increases the demand for these foreign offerings.

• Demand curve shifts upward and right to the original demand curve (A): To pay for these increased foreign goods and services (from B), Indians need to exchange their domestic currency (Rupees) for foreign currency (e.g., Dollars). This leads to an increased demand for foreign currency in the foreign exchange market, causing the demand curve for foreign currency to shift to the right.

• The value of rupees in terms of dollars has fallen and value of dollar in terms of rupees has risen (D): As the demand for foreign currency (dollars) increases relative to the supply, the price of the foreign currency in terms of the domestic currency increases. This means you need more rupees to buy one dollar, or conversely, one dollar now buys more rupees. This signifies a fall in the value of the rupee and a rise in the value of the dollar.

• Depreciation of domestic currency (rupees) in terms of foreign currency (dollars) (C): This is the outcome of the depreciation — the rupee buys fewer dollars, and the dollar buys more rupees.

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