Practicing Success
Which of the following options indicates the measures to correct dis-equilibrium (deficit) in the balance of payment position? |
Promoting exports Import substitution Devaluation of domestic currency All of the above |
All of the above |
Disequilibrium (deficit) means that imports are greater than the exports or inflow of foreign exchange is less than the outflow of foreign exchange. Thus, in order to balance it out exports should be promoted so that the flow of foreign currency is increased, imports must be substituted so that outflow of foreign currency is reduced. We can also devalue our domestic currency, as it promotes exports that is inflow of foreign exchange. Devaluation of domestic currency make exports cheaper for the foreign country residents, due to which the exports of domestic country increases. Goods which were available at 1 dollar for the foreign residents are now available at 1/2 dollar only because the domestic currency had devalued ( earlier 1 dollar = Rs70, now 1 dollar = Rs140). |