ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The economics of supply and demand dictate that when demand is high, prices rise and the currency appreciates in value. In contrast, if a country imports more than it exports, there is relatively less demand for its currency, so prices should decline. In the case of currency, it depreciates or loses value.

Detailed explanation-2: -Currency appreciation is an increase in the value of one currency in relation to another currency. Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances, and business cycles.

Detailed explanation-3: -appreciation of currency decreases the real price of imported intermediate goods and, hence, increases the demand for these goods.

Detailed explanation-4: -The value of a commodity–a currency in this case–is directly linked to its supply. As the supply of a currency increases, the currency becomes less valuable. Conversely, as the supply of a currency decreases, the currency becomes more valuable.

Detailed explanation-5: -When a country’s currency appreciates in relation to foreign currencies, foreign goods become cheaper in the domestic market and there is overall downward pressure on domestic prices. In contrast, the prices of domestic goods paid by foreigners go up, which tends to decrease foreign demand for domestic products.