J Curve effect refers to a phenomenon wherein the trade balance of a country worsens following the d...........

English ( Master) Paragraph Completion

Directions: Each of the following questions has a paragraph from which a sentence has been deleted. From the given options, choose the sentence that completes the paragraph in the most appropriate way.

J-Curve effect refers to a phenomenon wherein the trade balance of a country worsens following the depreciation of its currency before it improves. ___________________________________________.However, this may not happen immediately due to some other frictions within the economy. Many importers and exporters in the country, for instance, may be locked into binding agreements that could force them to buy or sell a certain number of goods despite the unfavorable exchange rate of the currency.

Simultaneously, exports will pick up as they have become more competitive/cheaper in the global market.

Generally, any depreciation in the value of a currency is expected to improve the economy’s overall trade balance by encouraging exports and discouraging imports.

This will lead to an improvement in trade balance & consequently in Current account deficit.

While India's exports have become more competitive due to the massive devaluation of the rupee, global growth has also stumbled which will limit the demand for India's exports.

Standard & Poors', world's largest credit rating agency, has warned that India could lose its investment grade credit rating in the coming months.

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Explanation:

Correct Answer is (b).
Option (b) is the most suitable answer as it adjusts most appropriately according to the context of the paragraph given. The first line of the paragraph talks about the J-curve effect where it is defined that the trade balance of a country worsens following the depreciation of its currency before it improves. The second statement must be such that it too talks about depreciation in the value of currency which though improves economy’s overall trade balance but this does not happen immediately due to some other frictions within the economy.