ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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.

Detailed explanation-2: -Effects of Currency Appreciation Export costs rise: If the U.S. dollar appreciates, foreigners will find American goods more expensive because they have to spend more for those goods in USD. That means that with the higher price, the number of U.S. goods being exported will likely drop.

Detailed explanation-3: -Appreciation of domestic currency means lower price of foreign currency in terms of domestic currency. This increases the price of domestic goods for foreign buyers. This means imports become cheaper. As a result the demand for imports may rise.

Detailed explanation-4: -appreciation of currency decreases the real price of imported intermediate goods and, hence, increases the demand for these goods. Furthermore, a rise in the energy price decreases the demand for labor and imported intermediate goods.

Detailed explanation-5: -With the appreciation of the Rupee, exports become more expensive and less profitable for the domestic exporter since they end up earning less Rupees when exchanging the dollar.