Question

Consider the following statements and select the correct answer using the codes given below:
• [(I)] Depreciation of currency improves exports.
• [(II)] Depreciation of currency improves imports.
• [(III)] Appreciation of currency improves exports.
• [(IV)] Appreciation of currency worsens the imports.

• A. Only (II) is correct
• B. (I), (II) and (III) are correct
• C. (I), (II) and (IV) are correct
• D. Only (I) is correct

Hint:

Currency Depreciation: \[ \text{Exports } \uparrow \] \[ \text{Imports } \downarrow \] Currency Appreciation: \[ \text{Exports } \downarrow \] \[ \text{Imports } \uparrow \]

Answer 1

The Correct Option is D

Concept: Exchange rate movements affect the competitiveness of exports and imports.

Step 1: Analyze Statement (I).
When a country's currency depreciates, domestic goods become cheaper for foreign buyers. As a result, \[ \boxed{\text{Exports increase}} \] Hence Statement (I) is correct.

Step 2: Analyze Statement (II).
Depreciation makes imported goods more expensive. Therefore imports generally decline. \[ \boxed{\text{Statement (II) is incorrect}} \]

Step 3: Analyze Statement (III).
Currency appreciation makes exports relatively expensive. Thus exports generally decrease. \[ \boxed{\text{Statement (III) is incorrect}} \]

Step 4: Analyze Statement (IV).
Appreciation makes imports cheaper and therefore tends to improve imports. \[ \boxed{\text{Statement (IV) is incorrect}} \] Hence only Statement (I) is correct. \[ \boxed{\text{Option (D)}} \]