Economics 3 Marks Question

Depreciation is the fall in the value of the domestic currency (i.e. Indian rupee) in relation to foreign currency when the exchange rate is determined by the forces of supply and demand.
i. Depreciation of the Indian currency implies that more rupees are required to buy a unit of foreign currency.
ii. It will make the imports costly and thus reduces import.
iii. Another view could be less dollars are required to buy a unit of Rupee.
iv. It will make imports cheap for a foreign country and thus induces exports.

Since the balance of payment is based upon system of double-entry book-keeping, the total debits must equal to total credits. This is because two aspects of each transaction recorded are equal in amount but appear on opposite sides of the balance of payments account. In this accounting sense, balances of payments for a country must always balance.