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: -Thus, depreciation of a currency tends to increase a country’s balance of trade (exports minus imports) by improving the competitiveness of domestic goods in foreign markets while making foreign goods less competitive in the domestic market by becoming more expensive.

Detailed explanation-3: -In general, when a currency loses value, people’s purchasing power declines as well because products-especially imported ones-cost more money. And when that causes a general rise in prices, it’s called inflation.

Detailed explanation-4: -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-5: -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.