Explain the impact of rise in exchange rate on national income.

1.	Explain the impact of rise in exchange rate on national income.
Answer» Rise in foreign exchange rate means appreciation in the value of foreign currency in relation to the domestic currency, i.e. one unit of foreign currency can buy more goods and services from India. It makes exports cheaper to foreign buyers and imports costlier to Indian buyers. As a result exports rise and imports fall leading to rise in net exports. A rise in net exports may lead to rise in national income. Detailed Answer : When foreign exchange rate rises, import become costly for the domestic customers. This reduces demand for imports using fall is demands for foreign exchange. When foreign exchange rate rises, domestic goods becomes cheaper for foreign buyers. This raises demand for export, causing rise in supply of foreign exchange.

Answer»

Rise in foreign exchange rate means appreciation in the value of foreign currency in relation to the domestic currency, i.e. one unit of foreign currency can buy more goods and services from India.

It makes exports cheaper to foreign buyers and imports costlier to Indian buyers. As a result exports rise and imports fall leading to rise in net exports. A rise in net exports may lead to rise in national income.

Detailed Answer :

When foreign exchange rate rises, import become costly for the domestic customers. This reduces demand for imports using fall is demands for foreign exchange. When foreign exchange rate rises, domestic goods becomes cheaper for foreign buyers. This raises demand for export, causing rise in supply of foreign exchange.

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