Practicing Success
Read the text carefully and answer the questions: |
The likely impact of an appreciation of the US dollar, on imports of the South East Asian Countries from the U.S. would be: |
The imports will rise The imports will fall The imports will remain unchanged The imports may rise or fall |
The imports will fall |
In the above question, the impact of the appreciation of the U.S. dollar, on the imports of South-East Asian countries has been asked. If the value of the dollar has been appreciated with respect to the South-East Asian currencies, it implies that the currency of the South-East Asian countries has depreciated. We know that the depreciation of the 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 increase. 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 a decrease in imports. Earlier we had to pay Rs70 for importing a product worth 1 dollar, now that will increase to Rs140 due to the depreciation of the domestic currency. |