(a) How does depreciation of domestic currency affect the exports?
(b) How does Make in India project affect foreign exchange rate?
(a) How does depreciation of domestic currency affect the exports?
(b) How does Make in India project affect foreign exchange rate?
(a) Depreciation of domestic currency means fall in the value of the domestic currency in terms of foreign currency under flexible exchange rate system. When there is depreciation of domestic currency, (say a change from 1 dollar = Rs. 55 to 1 dollar =Rs. 60), it becomes cheaper for foreigners to purchase from domestic market. Also, tourism to our country increases.
This increases the exports of the country.
(b) 'Make in India' project offers and attracts or invites foreign companies to enter the Indian territory and start the production process. This will increase the supply of foreign currency in our country. This will shift the supply curve of foreign exchange towards right from SS to S1S1 and foreign exchange rate will fall from OP1 to OP2 while the equilibrium quantity will increase from OQ1 to OQ2. This is known as appreciation of domestic currency.
(a) Depreciation of domestic currency means fall in the value of the domestic currency in terms of foreign currency under flexible exchange rate system. When there is depreciation of domestic currency, (say a change from 1 dollar = Rs. 55 to 1 dollar =Rs. 60), it becomes cheaper for foreigners to purchase from domestic market. Also, tourism to our country increases.
This increases the exports of the country.
(b) 'Make in India' project offers and attracts or invites foreign companies to enter the Indian territory and start the production process. This will increase the supply of foreign currency in our country. This will shift the supply curve of foreign exchange towards right from SS to S1S1 and foreign exchange rate will fall from OP1 to OP2 while the equilibrium quantity will increase from OQ1 to OQ2. This is known as appreciation of domestic currency.
