Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Open Economy Macro Economics

Question:

Under appreciation of foreign currency, who will be benefitted?

Options:

Importer of domestic country

Exporter of domestic country

Both of above

Neither 1 nor 2

Correct Answer:

Exporter of domestic country

Explanation:

Appreciation of foreign currency in terms of domestic currency implies deprecation of domestic currency. It is beneficial for exporters of domestic country. Say, 1 dollar = 50 rupees and an item costs 50 rupees. So, Americans will pay one dollar only. Now if us dollar appreciate, that is, one dollar is now = 100 rupees. So now for an item still costing 50 rupees, Americans will pay half US dollar. So goods of India become cheaper for people in US and hence demand for Indian goods will increase in US. This will lead to increase in exports of India. The reverse will happen for importers. Depreciation of domestic currency is not beneficial for importers.