ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A depreciation of domestic currency primarily increases the price of foreign goods relative to goods produced in the home country and diverts spending from foreign goods to domestic goods.

Detailed explanation-2: -Currency depreciation is a fall in the value of a currency in terms of its exchange rate versus other currencies. Currency depreciation can occur due to factors such as economic fundamentals, interest rate differentials, political instability, or risk aversion among investors.

Detailed explanation-3: -In the event of depreciation of the country’s currency, its exports tend to increase while imports tend to decrease.

Detailed explanation-4: -Economic effects 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-5: -Devaluing Currency A weak domestic currency makes a nation’s exports more competitive in global markets, and simultaneously makes imports more expensive. Higher export volumes spur economic growth, while pricey imports also have a similar effect because consumers opt for local alternatives to imported products.