NISM Certifications · NISM-Series-XV: Research Analyst · Economic Analysis
Which of the following is a typical effect of a sustained depreciation of the rupee against the US dollar on an Indian economy with significant imported crude oil?
Sustained rupee depreciation raises the rupee cost of imported inputs such as crude oil, adding to domestic price pressures. It may help exporters over time, but it does not automatically cure the current account deficit and makes foreign currency debt costlier to repay.
- ALower imported inflation
- BHigher cost of imported inputs, adding to domestic price pressuresCorrect
- CAutomatic reduction in the current account deficit with no cost
- DLower rupee cost of foreign currency debt repayment
Explanation
A weaker rupee makes imports such as crude costlier in rupee terms, raising input costs and inflation. Exports may benefit, but the deficit does not fall automatically, and foreign currency debt becomes costlier to service in rupees.
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