Question

Expalin the effect of appreciation of domestic currency on exports ?

Answer 1

Currency appreciation implies that domestic currency has become more expensive in terms of foreign currency. For instance, if the exchange rate falls from $1 = Rs 50 to $1 = Rs 48 then we say that rupee has appreciated against the dollar. In such a situation the domestic country's export to foreign countries have become expensive (because now foreigners ca purchase only Rs 48 worth of goods instead of Rs 50 worth of goods). This reduces the demand for exports.