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Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3?
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Q5 . Recently, the rate of dollars has shot up and the Indian rupee ha...
Impact of Weak Indian Rupee against Dollars on the Economy and Balance of Trade
The recent increase in the rate of dollars and the weakening of the Indian rupee indicates a depreciation of the Indian currency against the US dollar. This has several implications for the economy and the balance of trade of the country.
To illustrate the impact, let's assume that initially the exchange rate between the Indian rupee (INR) and the US dollar (USD) was 1 USD = 70 INR. However, due to the recent increase in the rate of dollars, the new exchange rate becomes 1 USD = 75 INR. This indicates that the Indian rupee has weakened by 7.14% against the US dollar.
The weakening of the Indian rupee against the dollar can have both positive and negative effects on the economy:
1. Inflation: A weaker currency can lead to higher inflation as the cost of imported goods increases. This can affect the purchasing power of consumers and result in an increase in the prices of essential commodities.
2. Exports: A weaker rupee makes Indian exports more competitive in the international market. As the value of the rupee decreases, Indian goods become relatively cheaper for foreign buyers, leading to an increase in export volumes. This can boost the revenue and profitability of Indian exporters.
3. Imports: On the other hand, imports become more expensive due to the weakening of the rupee. This can lead to an increase in the cost of raw materials, machinery, and other imported goods. Industries relying heavily on imports may face higher production costs, which can negatively impact their profitability.
4. Foreign Investments: A weaker currency can make the country's assets more attractive to foreign investors. They can purchase more assets or shares in Indian companies for the same amount of foreign currency. This can potentially attract foreign direct investment (FDI) and stimulate economic growth.
The balance of trade is the difference between a country's exports and imports. A weak rupee can influence the balance of trade in the following ways:
1. Export Boost: With a weaker rupee, Indian exports become cheaper for foreign buyers, leading to increased export volumes. This can result in a higher value of exports and potentially improve the balance of trade.
2. Import Pressure: On the other hand, imports become more expensive due to the depreciation of the rupee. This can lead to a higher import bill and potentially worsen the balance of trade.
3. Current Account Balance: The balance of trade is a significant component of the current account balance, which includes trade in goods and services, as well as income from investments and transfers. A weaker rupee can impact the current account balance by influencing the trade balance.
4. Foreign Exchange Reserves: A weaker rupee can put pressure on a country's foreign exchange reserves as the central bank may need to intervene to stabilize the currency. If the central bank sells foreign currency reserves to support the rupee, it can deplete the reserves and impact the country's ability to manage its external obligations.
In conclusion, the recent depreciation
Introduction
The recent increase in the rate of dollars and the weakening of the Indian rupee indicates a depreciation of the Indian currency against the US dollar. This has several implications for the economy and the balance of trade of the country.
Explanation with Numerical Example
To illustrate the impact, let's assume that initially the exchange rate between the Indian rupee (INR) and the US dollar (USD) was 1 USD = 70 INR. However, due to the recent increase in the rate of dollars, the new exchange rate becomes 1 USD = 75 INR. This indicates that the Indian rupee has weakened by 7.14% against the US dollar.
Effect on the Economy
The weakening of the Indian rupee against the dollar can have both positive and negative effects on the economy:
1. Inflation: A weaker currency can lead to higher inflation as the cost of imported goods increases. This can affect the purchasing power of consumers and result in an increase in the prices of essential commodities.
2. Exports: A weaker rupee makes Indian exports more competitive in the international market. As the value of the rupee decreases, Indian goods become relatively cheaper for foreign buyers, leading to an increase in export volumes. This can boost the revenue and profitability of Indian exporters.
3. Imports: On the other hand, imports become more expensive due to the weakening of the rupee. This can lead to an increase in the cost of raw materials, machinery, and other imported goods. Industries relying heavily on imports may face higher production costs, which can negatively impact their profitability.
4. Foreign Investments: A weaker currency can make the country's assets more attractive to foreign investors. They can purchase more assets or shares in Indian companies for the same amount of foreign currency. This can potentially attract foreign direct investment (FDI) and stimulate economic growth.
Effect on Balance of Trade
The balance of trade is the difference between a country's exports and imports. A weak rupee can influence the balance of trade in the following ways:
1. Export Boost: With a weaker rupee, Indian exports become cheaper for foreign buyers, leading to increased export volumes. This can result in a higher value of exports and potentially improve the balance of trade.
2. Import Pressure: On the other hand, imports become more expensive due to the depreciation of the rupee. This can lead to a higher import bill and potentially worsen the balance of trade.
3. Current Account Balance: The balance of trade is a significant component of the current account balance, which includes trade in goods and services, as well as income from investments and transfers. A weaker rupee can impact the current account balance by influencing the trade balance.
4. Foreign Exchange Reserves: A weaker rupee can put pressure on a country's foreign exchange reserves as the central bank may need to intervene to stabilize the currency. If the central bank sells foreign currency reserves to support the rupee, it can deplete the reserves and impact the country's ability to manage its external obligations.
In conclusion, the recent depreciation
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Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3?
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Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3?.
Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3?.
Solutions for Q5 . Recently, the rate of dollars has shot up and the Indian rupee has become very weak against dollars. What does this indicate? Use a numerical example . Also explain its effect on the economy and balance of Trade of the country . ( 3? in English & in Hindi are available as part of our courses for Commerce.
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