Devaluation of currency will be more beneficial if prices of
[amp_mcq option1=”domestic goods remain constant” option2=”exports become cheaper to importers” option3=”imports remain constant” option4=”exports rise proportionately” correct=”option1″]
This question was previously asked in
UPSC CDS-2 – 2017
– It increases the domestic currency price of imports, making them more expensive and less attractive to domestic buyers.
– The benefit of devaluation, primarily increased export competitiveness, is maximized if domestic costs and prices (especially of exportable goods) do not rise significantly.
– If domestic prices remain constant, the reduction in the foreign currency price of exports fully translates into a competitive advantage. If domestic prices rise, this advantage is eroded, making the devaluation less beneficial.