2016 · Q59
Statement (I): Foreign investment may effect a country’s export performance. Statement (II): Inflow of foreign exchange may cause appreciation of local currency leading to a rise in the price of export commodities.
Indian EconomyInflation and external sector
- ABoth statement (I) and Statement (II) are individually true and Statement (II) is the correct explanation of Statement (I)
- BBoth statement (I) and statement (II) are individually true but Statement (II) is not the correct explanation of Statement (I)
- CStatement (I) is true but Statement (II) is false
- DStatement (I) is false but Statement (II) is true
Explanation
FDI can raise export capacity and competitiveness, so it may affect a country’s export performance (I is true). Large foreign-exchange inflows can appreciate the local currency, making exports pricier abroad (II is true — and is one channel through which the effect in I operates). Hence (A).