Question

Discuss how a rise in an exchange rate would impact national income.

Answer 1

Exchange rate is the the value of one currency for the purpose of conversion to another. When an international trade or transaction takes place then there should be an exchange of currency. So the value of the currency will be differ from country to country. So the exchange rate also fluctuate. High value currency have higher exchange rate. So the country having low value for their currency needs to give more amount for purchasing the high value currency.

The exchange rate fluctuation or exchange rate risk is considered as the major problem for importers and exporters. Because these fluctuation leads to change in the transaction money. So here if the exchange rate is increased or if there is a rise in exchange rate then then national income also increases. This is because the country will get more amount of money from the another country because their exchange rate is increased which means there is a value addition for their currency. So they will get more amount of money by this rise in exchange rate and it will contribute to the national income.

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