The graph shows the demand for and supply of dollars. If India's exports fall sharply, the rupee is likely to A downward-sloping demand curve for dollars (D$) and an upward-sloping supply curve of dollars (S$). They cross at E, where the exchange rate is ₹80 per dollar and $40 billion is traded.

The graph shows the demand for and supply…

The graph shows the demand for and supply of dollars.

Question 29

MediumOriginal question

The graph shows the demand for and supply of dollars. If India's exports fall sharply, the rupee is likely to

A downward-sloping demand curve for dollars (D$) and an upward-sloping supply curve of dollars (S$). They cross at E, where the exchange rate is ₹80 per dollar and $40 billion is traded.

appreciate, as the supply of dollars shifts rightCorrect answerYour answerstay at ₹80, as demand is unchangedCorrect answerYour answerappreciate, as the demand for dollars shifts rightCorrect answerYour answerdepreciate, as the supply of dollars shifts leftCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

Fewer exports mean fewer dollars coming in at every rate: S$ shifts left.
With demand unchanged, the rupee price of a dollar rises above ₹80: the rupee depreciates.

Concept: Fall in exports
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsThe flexible rate: depreciation and appreciation

Practise this chapter →

Ten questions from Foreign Exchange Rate, at your own pace.

Practise this chapter →

Ten questions from Foreign Exchange Rate, at your own pace.

The graph shows the demand for and supply of dollars.

Question 29

Explanation