Under flexible exchange rate, when the price of domestic currency in terms of foreign currency increases, it is called :
Under flexible exchange rate, when the price of domestic currency in terms of foreign currency increases, it is called :
Solution
✅ Correct Option: 2
Flexible exchange rate: Currency value fluctuates freely.
Domestic currency: Currency of the home country.
Foreign currency: Currency of other countries.
- Depreciation: Currency value decreases.
- Appreciation: Currency value increases.
- Devaluation: Official currency value drop.
- Revaluation: Official currency value rise.
When the price of domestic currency increases in terms of foreign currency, it indicates that the domestic currency has become stronger. This is known as appreciation of domestic currency.
In contrast, a fixed exchange rate system maintains a stable currency value, unlike the flexible system where values fluctuate based on market forces.