Exchange Rate Depreciation Boosts Exporters with Domestic Inputs

Steps:

• Depreciation weakens domestic currency, making exports cheaper abroad and increasing foreign demand.
• Export revenues rise in domestic currency terms due to higher sales volume or prices.
• Domestic input costs remain stable in local currency, minimizing cost increases.
• Net gain occurs when revenue boost exceeds any cost changes, favoring export-focused firms with local suppliers.

Why A is correct:

• Depreciation raises export revenues in domestic currency while domestic inputs keep costs unchanged, per the exchange rate pass-through effect on trade balances.

Why the others are wrong:

• B: Export revenues increase, but foreign input costs rise sharply, offsetting gains.
• C: Domestic sales unaffected by exchange rates, so revenues and costs stay neutral—no net benefit.
• D: Domestic sales unchanged, but foreign inputs become costlier, leading to losses.

Final answer: A