Daily Quiz- 443
Bank on GK
Q1. When the Indian rupee depreciates against the US dollar, which of the following is the most immediate effect on trade?
- (a) Indian exports become more expensive for foreign buyers
- (b) Indian imports become cheaper in rupee terms
- (c) Indian exports become more competitive for foreign buyers
- (d) Foreign direct investment automatically decreases
Q2. Which sector in India is most adversely affected by a sharp and sustained depreciation of the rupee?
- (a) IT and software export services
- (b) Petroleum refining and crude oil import-dependent industries
- (c) Handloom and textile exports
- (d) Gem and jewellery exports
Q3. A depreciating rupee is said to cause "imported inflation" in India. Which of the following best explains this phenomenon?
- (a) India deliberately exports inflation to trading partners
- (b) Rising prices of imported goods, especially oil, push up domestic price levels
- (c) Inflation enters India through increased foreign direct investment
- (d) The government imports goods in bulk, causing artificial price rises
Q4. Consider the following groups with respect to rupee depreciation:
- NRIs sending remittances to India
- Indian students pursuing education abroad
- Indian IT software exporters
- Indian companies with large external commercial borrowings
Which of the above benefit from rupee depreciation?
- (a) 1 and 2 only
- (b) 2 and 4 only
- (c) 1 and 3 only
- (d) 3 and 4 only
Q5. India's Current Account Deficit (CAD) tends to worsen when the rupee depreciates sharply. Which of the following most accurately explains this?
- (a) Indian exports fall sharply as they become uncompetitive globally
- (b) The rupee cost of oil and other imports rises faster than gains from exports
- (c) Foreign tourists stop visiting India, reducing invisible earnings
- (d) The RBI stops purchasing government securities in the open market
Answers with explanations
A1. → (c) Depreciation makes Indian goods and services cheaper in dollar terms for foreign buyers, boosting export competitiveness. This is the primary trade-side benefit of a weaker rupee. Option (a) is the opposite of what happens; (b) is wrong because imports become costlier, not cheaper; (d) has no automatic or direct causal link.
A2. → (b) India imports roughly 85% of its crude oil, all priced in dollars. When the rupee weakens, the rupee cost of every barrel rises sharply, inflating energy costs across the entire economy — from fuel to fertiliser to freight. The export sectors in options (a), (c), and (d) actually gain from depreciation.
A3. → (b) "Imported inflation" means domestic price levels rise because of costlier imports — not because of any domestic supply-demand mismatch. India's dependence on imported crude, edible oils, and electronics makes it particularly vulnerable. Costlier oil raises transport costs, which then raises the price of virtually everything else in the economy.
A4. → (c) NRIs benefit because their foreign currency remittances convert to a larger rupee amount for recipient families. IT exporters earn in dollars and receive more rupees upon conversion — boosting revenues and margins. Indian students abroad (option 2) lose because their fees and living costs become more expensive in rupee terms. Companies with ECBs (option 4) lose because they need more rupees to service the same dollar debt.
A5. → (b) India's import basket is dominated by crude oil, gold, and capital goods — all dollar-denominated. When the rupee depreciates, the rupee value of these imports surges. Although exports also gain, the sheer volume and inelasticity of India's import bill — particularly oil — means the CAD tends to widen. Option (a) is incorrect because depreciation helps exports; (c) and (d) are peripheral and do not directly explain CAD movement in this context.
