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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamental Analysis of Commodities

A gold jewellery maker in India imports gold priced in US dollars. Assume international gold price is unchanged in dollar terms. Other things equal, which development would raise the rupee price of gold in the domestic market?

Rupee depreciation against the dollar raises the domestic gold price. With the international dollar price constant, each dollar converts into more rupees, so the landed rupee cost rises. Rupee appreciation or a lower import duty would instead reduce the domestic price.

  1. ADepreciation of the rupee against the US dollarCorrect
  2. BAppreciation of the rupee against the US dollar
  3. CA fall in the import duty on gold
  4. DA fall in the dollar-denominated cost of mining

Explanation

Domestic price equals the dollar price x exchange rate, plus duties. If the rupee depreciates, more rupees are needed per dollar, raising the rupee price. Appreciation and a duty cut lower the domestic price. Mining cost affects supply only indirectly and not with an unchanged international price.

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