Question : Assertion: Appreciation and Revaluation of Domestic Currency with respect to foreign currency are one and the same thing.
Reason: Appreciation and Revaluation of domestic currency make the domestic goods relatively expensive. As a result, decrease in exports and increase in imports of the nation are observed.
Option 1:
Both Assertion and Reason are true and correct explanation
Option 2: Both Assertion and Reason are true and incorrect explanation
Option 3: Assertion is true but Reason is false
Option 4: Assertion is false but Reason is true
Correct Answer: Assertion is false but Reason is true
Solution : The correct answer is d) The assertion is false, but the reason is true.
Appreciation and revaluation of domestic currency with respect to foreign currency are not the same thing. Appreciation refers to an increase in the value of a currency in the foreign exchange market, which means it can buy more of another currency. Revaluation, on the other hand, is a deliberate upward adjustment in the value of a currency by the government or central bank within a fixed exchange rate system.
The reason provided is correct. When a currency appreciates or undergoes revaluation, domestic goods become relatively more expensive in foreign markets. As a result, it can lead to a decrease in exports as foreign customers may find the goods relatively more expensive. At the same time, it can lead to an increase in imports as domestic consumers find foreign goods relatively cheaper. This can result in a trade imbalance with decreased exports and increased imports.
Question : Assertion: Devaluation of Domestic currency refers to rise in National Income of domestic country.
Reason: Devaluation of Domestic currency refers to reduction in the value of domestic currency with respect to foreign currency, under fixed exchange rate system.
Question : Assertion: Depreciation of a country's currency can help boost its export-oriented industries.
Reason: A weaker currency makes a country's exports more affordable and competitive in the global market.
Question : Assertion: Fluctuations in foreign exchange rates can impact a country's balance of trade.
Reason: A change in the exchange rate affects the competitiveness of a country's exports and imports.
Question : Assertion: A surplus in the capital account can lead to an appreciation of the domestic currency.
Reason: Higher capital inflows increase the demand for the domestic currency, strengthening its value.
Option 1: Both Assertion and Reason are true and correct explanation
Question : Assertion: Appreciation of a country's currency can have a negative impact on its tourism industry.
Reason: A stronger currency makes traveling to the country more expensive for foreign tourists.
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