Question

Which of the following statements is CORRECT? A stronger domestic currency stimulates exports by making exports...

Which of the following statements is CORRECT?

A stronger domestic currency stimulates exports by making exports cheaper

A weaker domestic currency hampers exports by making exports more expensive

A stronger domestic currency stimulates imports by making imports cheaper

None of the statements is correct

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Answer #1

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Answer-A stronger domestic currency stimulates imports by making imports cheaper

When a domestic currency becomes stronger ,the amount of money paid in domestic currency is lesser as compared to earlier for the same good imported from the other country,thus the imports become cheaper ,thus stimulating imports.On the other hand in case of exports,since the other country which is importing the goods from domestic country will have to pay more ,thus the exports will become expensive ,thus stronger currency will hamper exports .The opposite happens in case of weake currency.

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