ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Answer: True. Appreciation of domestic currency makes foreign goods relatively cheaper, which leads to increase in imports.

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: -True. Because due to depreciation, value of domestic currency decreases in relation to the foreign currency. Accordingly, goods become cheaper in the domestic economy which encourages exports, and goods costlier in the foreign market which discourages imports.

Detailed explanation-4: -In general, when a currency loses value, people’s purchasing power declines as well because products-especially imported ones-cost more money. And when that causes a general rise in prices, it’s called inflation.

Detailed explanation-5: -(a) Depreciation of domestic currency means fall in the value of the domestic currency in terms of foreign currency under flexible exchange rate system.