(Q15) Would you always justify depreciation of the Indian currency as it leads to a rise in exports or , Will you always appreciate a rise in exchange rate as a means to boost our exports ? Ans: No. Because a rise in exchange rate ( currency depreciation) may not always lead to a rise in our export earnings.
How does rupee depreciation affect exports?
This decline in the value of Rupee has an impact on the Indian Economy. When the rupee depreciates, the imports become more expensive. However, currency depreciation gives a boost to the exports of the country because Indian commodities become cheaper for the foreigners.
How depreciation of currency promotes exports of a country?
Depreciation of currency means that, now it is expensive for the domestic currency to buy foreign currency and is relatively cheaper for foreign country to buy domestic currency. Therefore, exports increases due to cheaper prices and imports decreases due to expensive foreign prices.
What happens when Indian currency depreciates?
Rupee depreciation means that rupee has become less valuable with respect to dollar. It means that the rupee is now weaker than what it used to be earlier. For example: USD 1 used to equal to Rs. … 76, implying that the rupee has depreciated relative to the dollar i.e. it takes more rupees to purchase a dollar.
How does weak currency help export?
A weak currency may help a country’s exports gain market share when its goods are less expensive compared to goods priced in stronger currencies. … Eventually, the currency discount may spur more exports and improve the domestic economy, provided there are no systematic issues weakening the currency.
Is rupee depreciation Good or bad?
There was no foreign borrowing on India’s balance sheet. … India being a developing economy with high inflation, depreciation of the currency is quite natural. Depreciation of rupee is good, so long as it is not volatile. A random depreciation that we have seen in the last few months is bad and it has hurt the economy.
Does INR increase in value?
For instance, due to heavy imports, the supply of the rupee may go up and its value fall. In contrast, when exports increase and dollar inflows are high, the rupee strengthens. Earlier, most countries had fixed exchange rates.
What is the difference between depreciation and devaluation of currency?
A devaluation occurs when a country makes a conscious decision to lower its exchange rate in a fixed or semi-fixed exchange rate. A depreciation is when there is a fall in the value of a currency in a floating exchange rate.
What is currency very short answer?
Currency is a medium of exchange for goods and services. In short, it’s money, in the form of paper or coins, usually issued by a government and generally accepted at its face value as a method of payment.
What is the effect of appreciation of domestic currency on imports?
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.
Why is the Indian Rupee falling?
What are the key reasons for the decline? Rising Covid numbers — over 1.6 lakh fresh daily cases — have emerged as a key concern. … While the FPIs invested a net of Rs 1.94 lakh crore between October and February (in the Indian markets) in the month of April they have pulled out a net of Rs 2,263 crore (till date).
Why Indian Rupee is devalued?
An increase in oil prices causes the value of the Indian currency to drop. As we discussed earlier, a fall in foreign investments in the Indian market, interest rates, inflation in the country also contribute to the depreciation of the INR.
Is the value of INR decreasing?
The rising current account deficit, possibly due to the severe problems faced by the Euro Zone, is a notable reason why the Indian rupee is depreciating. … The rising current account deficit has depleted our foreign exchange reserve and thus led to a fall in the value of the Indian Rupee.