Recently government has doubled the import duty on gold.what is impact is it likely to have on foreign exchange rate and how ?
Dear Student,
With the increase in the import duty on gold will lead to fall in the import of gold. This will control the demand and hence there is decline in the demand for foreign exchange. Assuming other things remain constant, a decline in the demand for foreign exchange will reduce the foreign exchange rate. Thereafter, with the supply of foreign currency of remaining same, the foreign exchange rate would fall. This implies appreciation of rupees.
Regards,
With the increase in the import duty on gold will lead to fall in the import of gold. This will control the demand and hence there is decline in the demand for foreign exchange. Assuming other things remain constant, a decline in the demand for foreign exchange will reduce the foreign exchange rate. Thereafter, with the supply of foreign currency of remaining same, the foreign exchange rate would fall. This implies appreciation of rupees.
Regards,