(a) How does giving incentives for exports influence Foreign Exchange Rate? Explain diagrammatically.
(b) How are the following transactions recorded in the balance of payment accounts? Give reasons.
(i) Foreign investment from abroad
(ii) Sale of machinery to abroad
(a) How does giving incentives for exports influence Foreign Exchange Rate? Explain diagrammatically.
(b) How are the following transactions recorded in the balance of payment accounts? Give reasons.
(i) Foreign investment from abroad
(ii) Sale of machinery to abroad
(a) As the exports rise due to incentives by the government for generating exports, the supply of foreign exchange increases and the supply curve shifts to the right. This will lead to rise in the foreign exchange rate which is known as appreciation of domestic currency.
(b) (i) Foreign investment from abroad—it will be recorded on the credit side of the capital account.
(ii) Sale of machinery to abroad—It will be recorded on the credit side of the current account.
(a) As the exports rise due to incentives by the government for generating exports, the supply of foreign exchange increases and the supply curve shifts to the right. This will lead to rise in the foreign exchange rate which is known as appreciation of domestic currency.
(b) (i) Foreign investment from abroad—it will be recorded on the credit side of the capital account.
(ii) Sale of machinery to abroad—It will be recorded on the credit side of the current account.
