ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -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.

Detailed explanation-3: -Appreciation of domestic currency occurs when market determined exchange rate falls.It signifies that foreign buyers will be able to buy less from one unit of currency. This makes exports costlier for the foreign buyers. As a result exports are likely to decline.

Detailed explanation-4: -To conclude, when a country has stronger value of currency or appreciation, they can import more goods and services from another country (assuming that the currency of exporting country remains the same). Similarly, currency depreciation leads to buying lesser in the same amount of money.