Other things remaining constant, when the price of foreign currency in terms of domestic currency rises, who in the domestic country is likely to gain?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Exporters of goods
When foreign currency becomes costlier, our goods become cheaper for foreigners. They buy more from us, so exporters gain.
Option (1) Importers of goods — Incorrect. Each dollar of imports now costs more rupees.
Option (2) Exporters of goods — Correct. Foreigners pay fewer dollars for our goods, so exports rise.
Option (3) Students paying fees to foreign universities — Incorrect. Fees fixed in foreign currency now need more rupees.
Option (4) Firms repaying loans taken in foreign currency — Incorrect. Each unit of the loan costs more rupees to repay.
NCERT (2026-27): “Supply of Foreign Exchange … A rise in price of foreign exchange will reduce the foreigner’s cost (in terms of USD) while purchasing products from India, other things remaining constant. This increases India’s exports and hence supply for foreign exchange may …” “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.” |