Question : What does the term "currency appreciation" refer to?
Option 1: Increase in the value of domestic currency
Option 2: Increase in the value of foreign currency
Option 3: Decrease in the value of domestic currency
Option 4: Decrease in the value of foreign currency
Correct Answer:
Increase in the value of domestic currency
Solution : The correct answer is a) Increase in the value of domestic currency
The term "currency appreciation" refers to an increase in the value of a domestic currency relative to other currencies. It means that one unit of the domestic currency can purchase a greater amount of foreign currency or goods and services denominated in foreign currencies.
Currency appreciation typically occurs when there is an increase in demand for the domestic currency in the foreign exchange market. Factors such as strong economic performance, high interest rates, positive investor sentiment, or increased demand for a country's exports can contribute to currency appreciation.
Currency appreciation has various implications. It can make imports cheaper, potentially leading to lower inflation and increased purchasing power for consumers. However, it may also make exports more expensive, affecting the competitiveness of a country's goods and services in international markets.
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