ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When foreign currency becomes cheaper, it indicates that demand of foreign exchange is higher than the supply of foreign exchange. Hence, other things remaining the same, when foreign currency becomes cheaper, the effect on national income is likely to be negative.

Detailed explanation-2: -A fixed exchange rate is a regime applied by a government or central bank that ties the country’s official currency exchange rate to another country’s currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency’s value within a narrow band.

Detailed explanation-3: -Currency appreciation takes place when there is a decrease in the price of a foreign currency in terms of the domestic currency. Here, less rupees are required to buy one dollar, i.e. the value of domestic currency becomes more valuable in relation to a foreign currency.

Detailed explanation-4: -In macroeconomics and economic policy, a floating exchange rate (also known as a fluctuating or flexible exchange rate) is a type of exchange rate regime in which a currency’s value is allowed to fluctuate in response to foreign exchange market events.