Which of the following statements is true?
If exchange rate changes from $\$$1 = ₹85 to $\$$ 1 = ₹90
(A) Imports will fall.
(B) Imports will rise.
(C) Exports will rise.
(D) National income will rise.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (C) and (D) only
When the exchange rate changes from $1 = ₹85 to $1 = ₹90, it means the rupee has depreciated (you now need more rupees to buy 1 dollar). This has the following effects:
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(A) Imports will fall: True. Since foreign goods become more expensive in rupees, people and businesses in India will import less.
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(C) Exports will rise: True. Indian goods become cheaper for foreigners, so exports increase.
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(D) National income will rise: True. Increased exports mean higher demand for domestic goods, leading to higher production, employment, and national income.
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(B) Imports will rise: False. Depreciation makes imports more expensive, leading to a decrease, not an increase, in imports.