A policy initiatedby the indialn Government had an adverse inpacct on the value of of Rupee in relation to foreign exchange. What does this indicate ? Discuss this with the help at a numerical example. Aslo explain its effect on the exports and imports of the economy.

A policy initiatedby the indialn Government had an adverse inpacct on

1.	A policy initiatedby the indialn Government had an adverse inpacct on the value of of Rupee in relation to foreign exchange. What does this indicate ? Discuss this with the help at a numerical example. Aslo explain its effect on the exports and imports of the economy.
Answer» Solution :Adverse Impact on the value of Rupee in relation to FOREIGN Exchange is know asDepreciation of domestic CURRENCY Numerical EXAMPLE : Suppose earlier, `1$=Rs. 70. ` If after the policy, the exchange rate changes to `1$=Rs 75`, then it indicates that rupee has depreciated. Effect on Exports : Due to depreciation of domestic currency, more good can be purchased from India with same amount of foreign currency. It means exports from India increases as they will BECOME RELATIVELY cheaper. Effect on Import : It result in decreases in imports as foreign goods will become costlier now.

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A policy initiatedby the indialn Government had an adverse inpacct on the value of of Rupee in relation to foreign exchange. What does this indicate ? Discuss this with the help at a numerical example. Aslo explain its effect on the exports and imports of the economy.

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