Question

Suppose the exchange rate was \[\ce{$}\]1 = ₹ 80 and later changed to \[\ce{$}\]1 = ₹ 92. What will be its effect on the following?

Export of cotton garments by India to the USA

Answer 1

In terms of US dollars, Indian cotton garments are cheaper for American consumers as the value of the home currency (from ₹ 80 to ₹ 92 per dollar) decreases. This would cause US consumers desire for Indian cotton garments to increase, therefore increasing exports as well as the quantity demanded.