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      Question

      Which of the following is NOT the likely impact of

      depreciation of rupee?
      A Import becomes costlier Correct Answer Incorrect Answer
      B Import becomes cheaper Correct Answer Incorrect Answer
      C Interest payment increases Correct Answer Incorrect Answer
      D IT companies earns more profit Correct Answer Incorrect Answer
      E Dividend payment to investor rises Correct Answer Incorrect Answer

      Solution

      With falling exchange rate (also called depreciation), import becomes costlier. Suppose we were importing a pen at $ 1. Now if exchange rate decreases from Rs 60/dollar to Rs 65/dollar. Now we have to pay 65 rupees instead of 60 rupees. Thus our interest payment on foreign loan increases. Same for dividend payment on investment. But it benefits the IT companies since depreciation benefits exporters. Export becomes cheaper with falling exchange rate. And our IT companies are net exporter of services so they get benefitted from depreciation.

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