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Explain how “Depreciation of Currency” promotes exports of a country. |
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Answer» When price of foreign currency in terms of domestic currency rises in the foreign exchange market it is termed as depreciation of domestic currency. Any depreciation of home currency results in increase in exports of the country since it increases the global competitiveness of the goods i.e., foreign countries can purchase more quantity of goods and services with the same amount of foreign currency from the domestic country. As a result exports of the domestic country rise. For example, if the value of rupee in terms of US dollar falls say ₹ 60 to ₹ 65 per dollar, Indian exporter will begin to earn an extra ₹ 5 per dollar. This works as an incentive to the exporter. |
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