Question

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

Answer 1

When there is an increase in the exchange rate in India, there will be a decrease in the demand for import of goods and services in India. For example, if the exchange rate for $1 = Rs 50 increases to $1 = Rs 56, then the import of goods to foreign countries will become costlier. So, the goods worth Rs 56 for $1 can be imported, and hence, there is a decline in the demand for imports.