ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If a currency appreciates it is more valuable; if a currency depreciates it is less valuable. 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.

Detailed explanation-2: -When a country’s exchange rate increases relative to another country’s, the price of its goods and services increases. Imports become cheaper. Ultimately, this can decrease that country’s exports and increase imports.

Detailed explanation-3: -A lower-valued currency makes a country’s imports more expensive and its exports less expensive in foreign markets. A higher exchange rate can be expected to worsen a country’s balance of trade, while a lower exchange rate can be expected to improve it.

Detailed explanation-4: -How does change in currency affects exports and imports? Since the exchange rate has an effect on the trade surplus or deficit, a weaker domestic currency stimulates exports and makes imports more expensive. Conversely, a strong domestic currency hampers exports and makes imports cheaper.