Question:
The diagram shows the value of Sri Lankan Rupee in terms of US dollars (Price of Rupee on Y-axis). What will be the effect of the shift in demand for Sri Lankan Rupees from D1 to D2?
(1) Sri Lankan exports to the USA will be more expensive.
(2) It will be cheaper for the Sri Lankan tourists to visit USA.
(3) Sri Lankan Treasury Bonds will be cheaper for the US investors.
(4) Sri Lankan Treasury Bonds will be more expensive for the US investors.
(5) The cost of imports from USA will decrease.
Correct Answer:
(3)
Answer Explanation:
The graph shows a leftward shift in the “Price of Rupee in terms of US dollars,” meaning the Rupee has depreciated (e.g., it now costs $0.005 to buy 1 LKR instead of $0.006). Rupee is weaker.
Topic: Exchange Rates Year: 2020
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