ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -By devaluing its currency against another, it can increase exports because its goods and services will cost less in the international market.

Detailed explanation-3: -Depreciation of domestic currency leads to rise in exports.

Detailed explanation-4: -The direct effect of an exchange rate depreciation is to increase the price of imports relative to exports, which will tend to decrease the value of net exports (exports less imports) and widen the current account deficit.

Detailed explanation-5: -When a country’s exchange rate increases relative to another country’s, the price of its goods and services increases. Imports become cheaper. Ultimately, this can decrease that country’s exports and increase imports.