Article Summary
Over the past two years, the Indian rupee has fallen 26 percent in value against the U.S. dollar, reaching a record low of 61.80 rupees per dollar in August 2013. The decline reflects increasing capital outflows and pessimism regarding the government's attempts to reverse this trend. The Indian government was expected to announce potential measures to increase the inflow of capital, including the possibility of raising debt abroad, raising money from Indians who live abroad, easing restrictions on overseas borrowing, and raising interest rates. Critics argue that current and well-entrenched policies deter capital inflow from investors and corporations, and raising interest rates may reduce confidence in the economy, which experienced a decade-low growth rate of 5 percent in 2013.
Source: Rafael Nam, "Rupee over 60: Why Indian currency weakness may be here to stay," Reuters, August 8, 2013.

-Refer to the Article Summary.All else equal,a depreciation of the Indian rupee relative to a currency such as the U.S.dollar should ________ Indian exports and ________ imports to India.

Question

Article Summary
Over the past two years, the Indian rupee has fallen 26 percent in value against the U.S. dollar, reaching a record low of 61.80 rupees per dollar in August 2013. The decline reflects increasing capital outflows and pessimism regarding the government's attempts to reverse this trend. The Indian government was expected to announce potential measures to increase the inflow of capital, including the possibility of raising debt abroad, raising money from Indians who live abroad, easing restrictions on overseas borrowing, and raising interest rates. Critics argue that current and well-entrenched policies deter capital inflow from investors and corporations, and raising interest rates may reduce confidence in the economy, which experienced a decade-low growth rate of 5 percent in 2013.
Source: Rafael Nam, "Rupee over 60: Why Indian currency weakness may be here to stay," Reuters, August 8, 2013.

-Refer to the Article Summary.All else equal,a depreciation of the Indian rupee relative to a currency such as the U.S.dollar should ________ Indian exports and ________ imports to India.

Quizplus · Accepted Answer

A depreciation of the Indian rupee relative to the U.S. dollar makes Indian exports cheaper and more competitive in the international market, which should increase Indian exports. On the other hand, imports to India become more expensive, which should decrease import demand. Therefore, option B) is the correct answer.

Article Summary Over the Past Two Years, the Indian Rupee Has Fallen