With reference to the recent depreciation of the Indian rupee, consider the following statements:
- A country's Real Effective Exchange Rate (REER) is measured using a weighted currency basket, adjusted for inflation differentials, rather than the nominal bilateral exchange rate against a single currency.
- High "import intensity of exports" means that currency depreciation simultaneously cheapens a country's exports for foreign buyers and raises the rupee cost of imported inputs used to produce those exports.
- Despite the rupee's depreciation over the past year, India's export growth outpaced import growth in 2025-26.
- Sustained rupee depreciation driven by imported inflation can constrain the Reserve Bank of India's ability to lower interest rates even when domestic growth conditions might otherwise call for it.
How many of the above statements are correct?
Tests the ability to connect a static macroeconomic concept (REER) with a current data-driven exception to classical trade theory, requiring analytical synthesis rather than isolated recall.
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This question is based on: Rupee at ₹95.4/Dollar: Why a Weaker Currency Isn't Fixing India's Trade Problem