Question : Which of the following best describes appreciation of currency:
Option 1: Imports become costlier
Option 2: Exports become cheaper
Option 3: Imports become cheaper
Option 4: No effect on Exports
Correct Answer: Imports become cheaper
Solution : The correct answer is (c) Imports become cheaper.
Appreciation of a currency refers to an increase in its value relative to other currencies. When a currency appreciates, it means that more units of foreign currency can be purchased with each unit of the domestic currency. This leads to a decrease in the price of imported goods and services in terms of the domestic currency, making them cheaper.
On the other hand, an appreciation of the domestic currency makes exports relatively more expensive for foreign buyers. This can potentially lead to a decrease in export competitiveness and make exports less attractive.
Therefore, the statement that best describes the appreciation of a currency is that imports become cheaper.
