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Question
Suppose the exchange rate was \[\ce{$}\]1 = ₹ 80 and later changed to \[\ce{$}\]1 = ₹ 92. What will be its effect on the following?
Export of cotton garments by India to the USA
Solution
In terms of US dollars, Indian cotton garments are cheaper for American consumers as the value of the home currency (from ₹ 80 to ₹ 92 per dollar) decreases. This would cause US consumers desire for Indian cotton garments to increase, therefore increasing exports as well as the quantity demanded.
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