Question

“Depreciation of currency may promote exports of a nation.”
Defend or refute the given statement with valid arguments.

Hint:

Currency depreciation can benefit exports but may lead to higher import costs and inflation.

Answer 1

Depreciation of a currency reduces the price of exports in foreign currency terms, making them more competitive in the global market. This increases the demand for exports, boosting a nation’s trade balance. However, it may also increase the cost of imports, leading to inflationary pressures within the domestic economy. Example: If the Indian rupee depreciates against the US dollar, Indian goods become cheaper for US buyers, increasing export demand.