Question : Which of the following is a disadvantage of a high real exchange rate?
Option 1: Increased exports.
Option 2: Increased tourism.
Option 3: Decreased competitiveness in the international market.
Option 4: Reduced inflationary pressures.
Correct Answer: Decreased competitiveness in the international market.
Solution : The correct answer is (c) Decreased competitiveness in the international market.
A high real exchange rate makes a country's goods and services relatively more expensive compared to those of other countries. This can reduce the competitiveness of domestic products in the international market, as they become relatively more expensive for foreign buyers. As a result, exports may decrease, as foreign customers may choose to purchase goods and services from countries with lower prices.
