foreign exchange rate in india is on the rise recently. what impact is it likely to have on imports and how ?
Riya,
A rise in foreign exchange rate makes imports dearer and hence, results in a fall in imports. A rise in foreign exchange means Indian currency is depreciating, whereas, US currency is appreciating. For example, suppose 1$ = Rs50, with a rise in foreign exchange, Indian currency depreciates and now 1$ is for Rs55. So, now more rupees are needed to buy one US $. The same item that people can purchase by paying 1$ before have now to pay more than 1$ with a rise in foreign exchange. So, people will reduce their demand and as a result, imports will reduce.
A rise in foreign exchange rate makes imports dearer and hence, results in a fall in imports. A rise in foreign exchange means Indian currency is depreciating, whereas, US currency is appreciating. For example, suppose 1$ = Rs50, with a rise in foreign exchange, Indian currency depreciates and now 1$ is for Rs55. So, now more rupees are needed to buy one US $. The same item that people can purchase by paying 1$ before have now to pay more than 1$ with a rise in foreign exchange. So, people will reduce their demand and as a result, imports will reduce.