UPSC Exam > UPSC Questions > Currency depreciation occurs whena)Increase i...
Start Learning for Free
Currency depreciation occurs when
- a)Increase in the domestic currency price of the foreign currency
- b)decrease in the domestic currency price of the foreign currency
- c)Increase in the price of the domestic currency
- d)decrease in the price of the domestic currency
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
Currency depreciation occurs whena)Increase in the domestic currency p...
Explanation:
Currency depreciation refers to the decrease in the value of a currency in relation to another currency or a basket of currencies. It is measured in terms of the domestic currency price of the foreign currency.
Example:
Suppose the exchange rate between the US dollar and the Indian rupee is 1 USD = 75 INR. If the exchange rate changes to 1 USD = 80 INR, it means that the Indian rupee has depreciated against the US dollar. Now, it will cost more Indian rupees to buy one US dollar.
Factors that lead to currency depreciation:
1. Trade deficit: If a country imports more than it exports, it leads to an increase in the demand for foreign currency. This, in turn, leads to a depreciation of the domestic currency.
2. Inflation: If a country experiences high inflation, its goods become relatively more expensive compared to other countries. This leads to a decrease in demand for its exports and an increase in demand for imports, leading to currency depreciation.
3. Speculation: If investors believe that the value of a currency is going to decrease, they may sell it, leading to a decrease in demand and a depreciation of the currency.
4. Interest rates: If a country has lower interest rates compared to other countries, it makes its currency less attractive to investors, leading to currency depreciation.
Impact of currency depreciation:
1. Exports become cheaper: A weaker currency makes exports cheaper and more competitive in international markets.
2. Imports become expensive: A weaker currency makes imports more expensive, leading to inflation.
3. Increase in foreign debt: If a country has borrowed in foreign currency, a depreciation of the domestic currency increases the cost of servicing the debt.
4. Increase in inflation: A weaker currency leads to an increase in the cost of imports, leading to inflation.
Conclusion:
Currency depreciation can have both positive and negative impacts on a country's economy. It can boost exports but also lead to inflation and an increase in foreign debt. Therefore, it is important for policymakers to carefully manage their currency exchange rates.
Currency depreciation refers to the decrease in the value of a currency in relation to another currency or a basket of currencies. It is measured in terms of the domestic currency price of the foreign currency.
Example:
Suppose the exchange rate between the US dollar and the Indian rupee is 1 USD = 75 INR. If the exchange rate changes to 1 USD = 80 INR, it means that the Indian rupee has depreciated against the US dollar. Now, it will cost more Indian rupees to buy one US dollar.
Factors that lead to currency depreciation:
1. Trade deficit: If a country imports more than it exports, it leads to an increase in the demand for foreign currency. This, in turn, leads to a depreciation of the domestic currency.
2. Inflation: If a country experiences high inflation, its goods become relatively more expensive compared to other countries. This leads to a decrease in demand for its exports and an increase in demand for imports, leading to currency depreciation.
3. Speculation: If investors believe that the value of a currency is going to decrease, they may sell it, leading to a decrease in demand and a depreciation of the currency.
4. Interest rates: If a country has lower interest rates compared to other countries, it makes its currency less attractive to investors, leading to currency depreciation.
Impact of currency depreciation:
1. Exports become cheaper: A weaker currency makes exports cheaper and more competitive in international markets.
2. Imports become expensive: A weaker currency makes imports more expensive, leading to inflation.
3. Increase in foreign debt: If a country has borrowed in foreign currency, a depreciation of the domestic currency increases the cost of servicing the debt.
4. Increase in inflation: A weaker currency leads to an increase in the cost of imports, leading to inflation.
Conclusion:
Currency depreciation can have both positive and negative impacts on a country's economy. It can boost exports but also lead to inflation and an increase in foreign debt. Therefore, it is important for policymakers to carefully manage their currency exchange rates.
|
Explore Courses for UPSC exam
|
|
Top Courses for UPSCView all
Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer?
Question Description
Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer?.
Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer?.
Solutions for Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC.
Download more important topics, notes, lectures and mock test series for UPSC Exam by signing up for free.
Here you can find the meaning of Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer?, a detailed solution for Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? has been provided alongside types of Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice Currency depreciation occurs whena)Increase in the domestic currency price of the foreign currencyb)decrease in the domestic currency price of the foreign currencyc)Increase in the price of the domestic currencyd)decrease in the price of the domestic currencyCorrect answer is option 'B'. Can you explain this answer? tests, examples and also practice UPSC tests.
|
|
Explore Courses for UPSC exam
|
|
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup