Arrange the following statements about the effect of change in demand for foreign goods on foreign exchange rate in open economy in correct sequence.
(A) It leads to a shift in the demand curve towards right.
(B) More Rupee needed against a dollar.
(C) Demand for foreign goods and services increases in the economy.
(D) It leads to depreciation of the domestic currency in terms of dollars.
Choose the correct answer from the options given below:
Arrange the following statements about the effect of change in demand for foreign goods on foreign exchange rate in open economy in correct sequence.
(A) It leads to a shift in the demand curve towards right.
(B) More Rupee needed against a dollar.
(C) Demand for foreign goods and services increases in the economy.
(D) It leads to depreciation of the domestic currency in terms of dollars.
Choose the correct answer from the options given below:
Solution
First, demand for foreign goods and services rises (C). This shifts the demand curve for foreign exchange to the right (A). The exchange rate rises, so more rupees are needed per dollar (B), which means the domestic currency depreciates against the dollar (D). Sequence: C, A, B, D.
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