CA Foundation · Business Economics · International Trade
The exchange rate moves from ₹80 per US dollar to ₹84 per US dollar. An Indian importer, Kapoor Traders, must pay US$50,000 for machinery. By how much does the rupee cost of the import change?
The rupee cost rises by ₹2,00,000. At ₹80 per dollar the machinery costs ₹40,00,000, and at ₹84 it costs ₹42,00,000. The rupee has depreciated, so imports priced in dollars become more expensive for the Indian importer.
- AIncreases by ₹2,00,000Correct
- BDecreases by ₹2,00,000
- CIncreases by ₹4,000
- DDecreases by ₹4,000
Explanation
Cost at ₹80 = 50,000 × 80 = ₹40,00,000. Cost at ₹84 = 50,000 × 84 = ₹42,00,000. The difference is ₹2,00,000 more because the rupee has depreciated. Choosing a decrease wrongly treats the higher rate as rupee appreciation.
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