Practicing Success
Read the text carefully and answer the questions: |
What will be the impact of the depreciation of the domestic currencies of the South East Asian Countries? |
The exports of the countries will rise The exports of the countries will fall The exports of the countries will remain unchanged The imports of the countries will rise |
The exports of the countries will rise |
In the above question, we witness a depreciation of the domestic currency. We know that depreciation of currency is the increase in the exchange rate of 2 countries. It encourages the exports of the country. Depreciation of domestic currency makes exports cheaper for 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 depreciated ( earlier 1 dollar = Rs70, now 1 dollar = Rs140). Similarly, the imports become expensive for the domestic country, which results in decrease of imports. Earlier we had to pay Rs70 for importing a product worth 1 dollar, now that will increase to Rs140 due to depreciation of domestic currency. |