Question : Assertion: Fluctuations in foreign exchange rates impact a country's imports and exports.
Reason: Changes in exchange rates affect the relative prices of goods and services, making imports more expensive and exports more competitive.
Option 1: True for a country with fixed exchange rates.
Option 2: True only for countries with a large trade deficit.
Option 3: True, as exchange rate fluctuations impact the competitiveness of a country's goods and services in the global market.
Option 4: False, as foreign exchange rates have no influence on a country's imports and exports.
Correct Answer: True, as exchange rate fluctuations impact the competitiveness of a country's goods and services in the global market.
Solution : The correct answer is (c) True, as exchange rate fluctuations impact the competitiveness of a country's goods and services in the global market.
Both the assertion and the reason are correct. Fluctuations in foreign exchange rates do impact a country's imports and exports. Changes in exchange rates affect the relative prices of goods and services, which in turn affect the competitiveness of a country's exports and the cost of its imports. When a country's currency appreciates, its exports become relatively more expensive, leading to a potential decrease in exports. Conversely, when a country's currency depreciates, its exports become relatively cheaper, potentially increasing export competitiveness. Similarly, changes in exchange rates affect the cost of imported goods, making them more or less expensive for domestic consumers and businesses. Therefore, exchange rate fluctuations play a significant role in a country's international trade dynamics.
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