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If the Indian Rupee appreciates against the US Dollar, what is the likely impact on the trade balance?

medium Q14 of 15
Economic Awareness - Sectors of Indian Economy
If the Indian Rupee appreciates against the US Dollar, what is the likely impact on the trade balance?
ATrade balance improves due to cheaper exports
BTrade balance worsens due to expensive exports and cheaper imports
CTrade balance remains unaffected
DTrade balance improves due to expensive imports
Step-by-Step Solution
  1. Step 1: Understand appreciation effects

    Appreciation makes exports expensive and imports cheaper.
  2. Step 2: Analyze trade balance impact

    Expensive exports reduce export volume; cheaper imports increase import volume, worsening trade balance.
  3. Final Answer:

    Trade balance worsens due to expensive exports and cheaper imports → Option B
  4. Quick Check:

    Currency appreciation = trade balance worsens ✅
Quick Trick: Stronger currency can hurt trade balance.
Common Mistakes:
MISTAKES
  • Assuming appreciation always improves trade balance.
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