Under a flexible exchange rate, when the price of domestic currency in terms of foreign currency increases is called?
Under a flexible exchange rate, when the price of domestic currency in terms of foreign currency increases is called?
Solution
Option 1 -> Depreciation occurs when domestic currency loses value in a flexible exchange rate system.
Option 2 -> Appreciation occurs when domestic currency gains value in a flexible exchange rate system.
Option 3 -> Devaluation is a deliberate policy action to reduce currency value under fixed exchange rates.
Option 4 -> Revaluation is a deliberate policy action to increase currency value under fixed exchange rates.
Hence, Appreciation of domestic currency -> When the price of domestic currency in terms of foreign currency increases under a flexible exchange rate system, it means the domestic currency has become more valuable. This market-driven increase in value is called appreciation. For example, if 1 rupee could previously buy 0.012 dollars and now buys 0.014 dollars, the rupee has appreciated. Note that appreciation/depreciation apply to flexible rates (market-driven), while revaluation/devaluation apply to fixed rates (policy-driven). -> correct
Related questions:
2026: 20 May Shift 1
2023: 1 June Shift 1
2023: 30 May Shift 1