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If the rupee is devalued against foreign currencies, it may lead to
- A higher Cash Reserve Ratio (CRR) in the banking system
- Increase in the inflow of foreign exchange
- Greater exports and lesser imports
Select the correct answer code:
- a)1 and 2 only
- b)2 and 3 only
- c)1 only
- d)1, 2, 3
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
If the rupee is devalued against foreign currencies, it may lead to A ...
Impact of Rupee Devaluation
When the rupee is devalued against foreign currencies, it has several significant economic implications. Let's break down the effects as mentioned in the options.
1. Higher Cash Reserve Ratio (CRR) in the Banking System
- A devaluation of the rupee typically does not directly lead to an increase in the Cash Reserve Ratio (CRR).
- The CRR is influenced by monetary policy decisions made by the central bank based on inflation, liquidity, and economic growth, rather than currency valuation directly.
2. Increase in the Inflow of Foreign Exchange
- A weaker rupee makes Indian goods and services cheaper for foreign buyers, potentially leading to an increase in exports.
- This can attract foreign investment as the assets become cheaper for foreign investors, thus increasing the inflow of foreign exchange.
3. Greater Exports and Lesser Imports
- A devalued rupee helps to boost exports as Indian products become more competitively priced abroad.
- Conversely, imports become more expensive, leading to a decrease in import volumes, particularly for non-essential goods.
Conclusion
Given the analysis:
- Option 1 is not a direct consequence of rupee devaluation.
- Options 2 and 3 are valid outcomes, emphasizing increased foreign exchange inflow and shifting trade balances in favor of exports.
Thus, the correct answer is option 'B': 2 and 3 only. These points illustrate the broader economic dynamics at play when a currency is devalued.
When the rupee is devalued against foreign currencies, it has several significant economic implications. Let's break down the effects as mentioned in the options.
1. Higher Cash Reserve Ratio (CRR) in the Banking System
- A devaluation of the rupee typically does not directly lead to an increase in the Cash Reserve Ratio (CRR).
- The CRR is influenced by monetary policy decisions made by the central bank based on inflation, liquidity, and economic growth, rather than currency valuation directly.
2. Increase in the Inflow of Foreign Exchange
- A weaker rupee makes Indian goods and services cheaper for foreign buyers, potentially leading to an increase in exports.
- This can attract foreign investment as the assets become cheaper for foreign investors, thus increasing the inflow of foreign exchange.
3. Greater Exports and Lesser Imports
- A devalued rupee helps to boost exports as Indian products become more competitively priced abroad.
- Conversely, imports become more expensive, leading to a decrease in import volumes, particularly for non-essential goods.
Conclusion
Given the analysis:
- Option 1 is not a direct consequence of rupee devaluation.
- Options 2 and 3 are valid outcomes, emphasizing increased foreign exchange inflow and shifting trade balances in favor of exports.
Thus, the correct answer is option 'B': 2 and 3 only. These points illustrate the broader economic dynamics at play when a currency is devalued.
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If the rupee is devalued against foreign currencies, it may lead to A higher Cash Reserve Ratio (CRR) in the banking system Increase in the inflow of foreign exchange Greater exports and lesser importsSelect the correct answer code:a)1 and 2 onlyb)2 and 3 onlyc)1 onlyd)1, 2, 3Correct answer is option 'B'. Can you explain this answer?
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