question_answer

When foreign exchange rate in a country is on the rise, what impact is it likely to have on imports and how?

Answer:

When foreign exchange rare in a country is on the rise then the demand for foreign currencies will be low. A rise in the exchange rate i.e., 1 = Rs. 42 to 1 = Rs 50 implies that the goods of abroad become more expensive that is, it now cost Rs 50 to purchase a commodity worth $ 1 instead of Rs 40 earlier. This would result in a reduction in the demand for the foreign commodities. Thus, there will be fall in imports.