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Arrange the following statements in correct sequence as a result of change in demand for import and its impact on exchange rate;

(A) An increase in exchange rate makes domestic goods cheaper, and increases the exports of domestic country.

(B) There is an increase in the income in the domestic country.

(C) It will lead to increase in the import demand.

(D) There will be increase in the exchange rate.

Choose the correct answer from the options given below:

Solution

✅ Correct Option: 2

Rising domestic income (B) raises demand for imports (C), which increases demand for foreign currency and pushes up the exchange rate, i.e. the domestic currency depreciates (D). At the higher exchange rate, domestic goods become cheaper for foreigners, so exports rise (A). Sequence: (B), (C), (D), (A).

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