ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In a floating rate exchange system, the value of a currency constantly changes based on supply and demand in the forex market. The fluctuation in values allows traders and firms to increase or decrease their holdings and profit off them.

Detailed explanation-2: -When an exchange rate changes, the value of one currency will go up while the value of the other currency will go down. When the value of a currency increases, it is said to have appreciated. On the other hand, when the value of a currency decreases, it is said to have depreciated.

Detailed explanation-3: -Key Takeaways Currency appreciation is the increase in the value of one country’s currency relative to another country’s currency. An increase in government spending or a cut in taxes as well as an increase in investment demand typically causes currency to appreciate.

Detailed explanation-4: -If the dollar appreciates (the exchange rate increases), the relative price of domestic goods and services increases while the relative price of foreign goods and services falls.

Detailed explanation-5: -Appreciation is an increase in the value of a currency, while depreciation, or devaluation, is a fall in value. Both processes affect domestic inflation, which is the continuous rise in the price of goods and services. Currency appreciation usually causes domestic inflation to fall.