Question : When a country's currency appreciates, it means that:
Option 1: Its value decreases relative to other currencies
Option 2: Its value increases relative to other currencies
Option 3: It remains stable against other currencies
Option 4: It has no impact on other currencies
Correct Answer:
Its value increases relative to other currencies
Solution : When a country's currency appreciates, it means that its value has increased relative to other currencies. In other words, more of another currency can be purchased with one unit of the appreciating currency. For example, if the exchange rate between the US dollar and the euro is 1 USD = 0.85 EUR and it changes to 1 USD = 0.90 EUR, then the US dollar has appreciated relative to the euro because you can now buy more euros with one US dollar.
Currency appreciation can occur due to a variety of factors, such as increased demand for the currency, higher interest rates, or positive economic news. While currency appreciation can have benefits such as reducing the cost of imports, it can also make exports more expensive, which can negatively impact a country's trade balance and economic growth.
