Question

Explain the effect of depreciation of domestic currency on exports?

Answer 1

Dear Student

Depreciation of currency means fall in the value of domestic currency in terms of foreign currency. For e.g. If earlier 1$ = Rs 60
​and now 1$ = Rs 65 then rupee has depreciated by Rs 5. Depreciation of currency means that, now it is expensive for the domestic currency to buy foreign currency and is relatively cheaper for foreign country to buy domestic currency. Therefore, exports increases due to cheaper prices of domestic product.

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