Import and Export

The goods and services made domestically by a country and sent to foreign countries are called export. On the other hand, goods and services bought by a country from a foreign country are termed as import. Positive net exports indicate economic growth while imports are a drag on the economy since imports represent outflow of funds.

The exchange rate is a determinant of the volume of rupees earned per dollar of exports and currency paid per dollar of imports. Hence it determines the competitiveness of imports in the domestic market and competitiveness of exports in the foreign market.

Devaluation in rupee indicates that more local currency is required to purchase imported items. As far as exports are concerned, the exporters get more local currency in exchange if their goods or services. In other words, devaluation of currency makes imports more expensive and exports cheaper.

In the same way appreciation in rupee will indicate that less local currency is required to make the import purchases and exporters now get less currency for their sales. Thus, it makes imports cheaper and exports expensive.

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