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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?
Import of wheat by India from the USA
Solution
The depreciation of the domestic currency (from ₹ 80 to ₹ 92 per dollar) increases the cost of imports from the USA for Indian buyers in terms of Indian rupees. As a result, India's wheat imports from the USA may decline.
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