ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -The exchange rate of a currency is how much of one currency can be bought for each unit of another currency. A currency appreciates if it takes more of another currency to buy it, and depreciates if it takes less of another currency to buy it.

Detailed explanation-3: -If the dollar appreciates (the exchange rate increases), the relative price of domestic goods and services increases while the relative price of foreign goods and services falls.

Detailed explanation-4: -The increase in the value of a currency usually leads to a lowering in the inflation rates. Currency appreciation effects largely have an impact on local businesses as their products and services become costlier and their demand goes down. They reduce their prices and workforce to survive the dip in demand.

Detailed explanation-5: -Government policy and an increase in investment demand cause currency to appreciate. When a currency appreciates relative to another currency it means the goods of that country are more expensive, so exports will fall.