Question

When exchange rate in terms of domestic currency rises

• A. Exports become cheaper
• B. Imports become cheaper
• C. Exports become costlier
• D. No effect on imports

Hint:

A rise in Rs./unit-foreign-currency = rupee depreciation, which cheapens exports and raises import cost.

Answer 1

The Correct Option is A

Step 1: Define the exchange rate direction:
If exchange rate = Rs. per US$ rises (e.g. Rs.80/$ → Rs.85/$), it takes MORE rupees to buy one dollar — the rupee has weakened.

Step 2: Think from the foreign buyer's side:
A foreigner holding dollars can now buy more rupees per dollar than before, so an Indian good priced in rupees costs the foreigner fewer dollars — Indian exports look cheaper abroad.

Step 3: Think from the domestic buyer's side (to rule out B, C, D):
An Indian importer now needs more rupees to pay for the same dollar-priced import, so imports become costlier, not cheaper — confirming exports (not imports) are the ones that get cheaper.

Final Answer:
Option A.