Other things remaining constant, a rise in the price of foreign exchange will:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → raise the rupee cost of foreign goods and so reduce the demand for foreign exchange
If a dollar costs more rupees, foreign goods cost more in rupees. People buy fewer imports, so they need less foreign exchange.
So demand for foreign exchange falls as its price rises, like the demand for any good.
NCERT (2026-27): “Demand for Foreign Exchange … A rise in price of foreign exchange will increase the cost (in terms of rupees) of purchasing a foreign good. This reduces demand for imports and hence demand for foreign exchange also decreases, other things remaining constant.” |