ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Depreciation increases the demand for domestically produced goods by reducing their relative price. This will lead to increase in exports and hence fall in imports, as now foreign country can buy greater units in the domestic country with same amount of their currency.

Detailed explanation-2: -Depreciation of the currency implies that more rupees are required to buy a dollar, or that a dollar can now buy goods worth more rupees than before. Accordingly. exports are expected to increase, while imports will take a hit.

Detailed explanation-3: -Devaluation is the deliberate downward adjustment of the value of a country’s money relative to another currency, group of currencies, or currency standard.

Detailed explanation-4: -True. Because due to depreciation, value of domestic currency decreases in relation to the foreign currency. Accordingly, goods become cheaper in the domestic economy which encourages exports, and goods costlier in the foreign market which discourages imports.

Detailed explanation-5: -Currency depreciation, if orderly and gradual, improves a nation’s export competitiveness and may improve its trade deficit over time. But an abrupt and sizable currency depreciation may scare foreign investors who fear the currency may fall further, leading them to pull portfolio investments out of the country.