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.

Detailed explanation-2: -appreciation of currency decreases the real price of imported intermediate goods and, hence, increases the demand for these goods.

Detailed explanation-3: -As one nation’s currency exchange rate increases, imports of goods to that country become cheaper while its exports become more expensive to other countries. Some countries even hoard foreign currency because doing so can absorb some of the impact of exchange rate volatility.

Detailed explanation-4: -Key Takeaways A rising level of imports and a growing trade deficit can have a negative effect on a country’s exchange rate. A weaker domestic currency stimulates exports and makes imports more expensive; conversely, a strong domestic currency hampers exports and makes imports cheaper.

Detailed explanation-5: -When the real exchange rate is high, the relative price of goods at home is higher than the relative price of goods abroad. In this case, import is likely because foreign goods are cheaper, in real terms, than domestic goods. Thus, when the real exchange rate is high, net exports decrease as imports rise.