Question

What will decrease due to exchange rate depreciation?

• A. Import
• B. Export
• C. Capital investment
• D. None of these

Hint:

When the exchange rate depreciates, imports become more expensive, leading to a decrease in imports.

Answer 1

The Correct Option is A

Step 1: Understanding the impact of exchange rate depreciation.
When the exchange rate of a country's currency depreciates, the value of its currency decreases relative to other currencies. This makes imported goods more expensive, which leads to a decrease in imports. On the other hand, exports become cheaper for foreign buyers, potentially increasing exports.

Step 2: Analyzing the options.
(A) Import: Correct. Depreciation of the currency makes imports more expensive, leading to a decrease in imports.
(B) Export: Incorrect. Depreciation typically makes exports cheaper for foreign buyers, which may increase exports.
(C) Capital investment: Incorrect. Exchange rate depreciation doesn't directly affect capital investment in a clear-cut way as it affects trade balance.
(D) None of these: Incorrect, as the correct answer is (A).

Step 3: Conclusion.
Exchange rate depreciation causes a decrease in imports, as they become more expensive. Thus, the correct answer is (A).