Chapter 18, Problem 4AA

To determine

To fill: The blank with suitable option.

Answer to Problem 4AA

Option (c)

Explanation of Solution

Balance of Trade (BOT) refers to the difference between the values of visible trade transactions of a country with the rest of the world (ROW). If the value of exported goods is greater than the value of imported goods during the year then it is called favorable BOT and vice versa.

The value of import and export of goods depends on the rate of exchange between the countries. For example, if the rate of exchange between the USA and India rises from IUSD = INR 70 to 1USD = INR 72 then the exports from India will rise as it is cheaper for Americans to buy goods from India leaving the USA with an unfavorable BOT while on the other part it becomes expensive for Indians to import goods from the USA leaving India a favorable BOT.

Hence the correct option is (c) -affect.