Class 12 Exam > Class 12 Questions > If 75 are required to buy 1$, instead of 78...
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If ₹ 75 are required to buy 1$, instead of ₹ 78 per US Dollar, this situation is indicating that
- a)Domestic currency has appreciated
- b)Domestic currency has depreciated
- c)Rupee value of import bill will increase
- d)Rupee value of export bill will decrease
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
If 75 are required to buy 1$, instead of 78 per US Dollar, this situ...
Explanation:
Background Information:
In this scenario, the exchange rate between the domestic currency and the US dollar is given as 78 per US dollar. This means that to buy 1 US dollar, one needs to spend 78 units of the domestic currency.
Understanding the Situation:
According to the question, if the exchange rate changes to 75 per US dollar, it implies that now only 75 units of the domestic currency are required to buy 1 US dollar.
Analysis of the Situation:
To understand the impact of this change, we need to consider the relationship between the exchange rate and the value of the domestic currency.
When the exchange rate decreases (as in this case), it means that the domestic currency has appreciated in value. This means that the domestic currency has become stronger against the US dollar.
Explanation of the Correct Answer:
The correct answer is option 'A' - Domestic currency has appreciated.
Reasoning:
When the domestic currency appreciates, it means that it can now buy more of a foreign currency (in this case, the US dollar) with the same amount of domestic currency.
Therefore, if initially 78 units of the domestic currency were required to buy 1 US dollar, but now only 75 units are needed, it implies that the domestic currency has become stronger.
Impact on Import Bill:
An appreciation in the domestic currency has implications for the import bill.
When the domestic currency appreciates, the cost of imports denominated in foreign currency (such as the US dollar) decreases. This means that the rupee value of the import bill will decrease.
Impact on Export Bill:
Similarly, an appreciation in the domestic currency has implications for the export bill.
When the domestic currency appreciates, the value of exports denominated in the foreign currency (such as the US dollar) decreases. This means that the rupee value of the export bill will decrease.
Conclusion:
In summary, a change in the exchange rate from 78 to 75 per US dollar indicates that the domestic currency has appreciated. This leads to a decrease in the rupee value of the import bill and the export bill.
Background Information:
In this scenario, the exchange rate between the domestic currency and the US dollar is given as 78 per US dollar. This means that to buy 1 US dollar, one needs to spend 78 units of the domestic currency.
Understanding the Situation:
According to the question, if the exchange rate changes to 75 per US dollar, it implies that now only 75 units of the domestic currency are required to buy 1 US dollar.
Analysis of the Situation:
To understand the impact of this change, we need to consider the relationship between the exchange rate and the value of the domestic currency.
When the exchange rate decreases (as in this case), it means that the domestic currency has appreciated in value. This means that the domestic currency has become stronger against the US dollar.
Explanation of the Correct Answer:
The correct answer is option 'A' - Domestic currency has appreciated.
Reasoning:
When the domestic currency appreciates, it means that it can now buy more of a foreign currency (in this case, the US dollar) with the same amount of domestic currency.
Therefore, if initially 78 units of the domestic currency were required to buy 1 US dollar, but now only 75 units are needed, it implies that the domestic currency has become stronger.
Impact on Import Bill:
An appreciation in the domestic currency has implications for the import bill.
When the domestic currency appreciates, the cost of imports denominated in foreign currency (such as the US dollar) decreases. This means that the rupee value of the import bill will decrease.
Impact on Export Bill:
Similarly, an appreciation in the domestic currency has implications for the export bill.
When the domestic currency appreciates, the value of exports denominated in the foreign currency (such as the US dollar) decreases. This means that the rupee value of the export bill will decrease.
Conclusion:
In summary, a change in the exchange rate from 78 to 75 per US dollar indicates that the domestic currency has appreciated. This leads to a decrease in the rupee value of the import bill and the export bill.
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Community Answer
If 75 are required to buy 1$, instead of 78 per US Dollar, this situ...
As less units of domestic currency are required to exchange one unit of foreign currency, this situation refers to appreciation of domestic currency.
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If 75 are required to buy 1$, instead of 78 per US Dollar, this situation is indicating thata)Domestic currency has appreciatedb)Domestic currency has depreciatedc)Rupee value of import bill will increased)Rupee value of export bill will decreaseCorrect answer is option 'A'. Can you explain this answer?
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