1.

How does rise and fall in exchange rate affects import and export trade of India?

Answer»

Impact of exchange rate:

Rise or fall in exchange rate has a major impact on our import and export trade.

Impact on import:

When the exchange rate rises for India, the value of Indian rupee (₹) falls. So, India has to pay more rupees to purchase foreign goods i.e. importing becomes costlier. As a result, the demand for imported goods decline.

Impact on export:

  • In terms of export, when the exchange rate rises for India, India can export more quantity of goods in lesser amount. This boosts export trade.
  • For example, if earlier by spending US $ 1, a foreign trader could purchase goods worth ₹ 60, then now he can buy goods worth ₹ 65. Hence, export ₹ from India tend to rise.
  • The reverse happens when exchange rate for India falls.


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