Description
Statement 1 is not correct.
Here, when the exchange rate moves from Rs 66 to Rs 55, foreign commodities become cheaper for Indian consumers. You can get 1$ worth of commodities by giving just Rs 55 compared to the previous situation of paying Rs 66. This means that imports into
India will increase. Hence, statement 1 is wrong. Similarly, in the changed situation, foreigners can get only Rs 55 worth of commodities from India compared to Rs 66 worth of commodities while they spend 1$. This will discourage exports from India. Hence, statements 2 and 4 are correct. At the same time, for exporters, they can continuously get Rs 66 per dollar and not Rs 55 per dollar had they hedged their earnings. Hence, statement 3 is correct.