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If the equilibrium Rupee-Dollar exchange rate was Rs.65 and now it has become Rs.70 per dollar, then the Rupee has?
  • a)
    The Rupee has depreciated against the Dollar
  • b)
    The dollar has depreciated against the Rupee
  • c)
    The Rupee has appreciated against the dollar.
  • d)
    None of the above
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
If the equilibrium Rupee-Dollar exchange rate was Rs.65 and now it ha...
Changes in the price of foreign exchange under flexible exchange rates are referred to as currency depreciation or appreciation. For instance, if the equilibrium Rupee-Dollar exchange rate was Rs.65 and now it has become Rs.70 per dollar, then the Rupee has depreciated against the dollar.
By contrast a currency appreciates when it becomes more expensive in terms of foreign currency. Thus statement 1 is correct.
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If the equilibrium Rupee-Dollar exchange rate was Rs.65 and now it ha...
Depreciation of the Rupee:
When the Rupee-Dollar exchange rate increases from Rs.65 to Rs.70 per dollar, it means that now you need more Rupees to buy one Dollar. This indicates that the Rupee has depreciated against the Dollar.

Explanation:
- A depreciation of the Rupee means that the Rupee has lost value compared to the Dollar.
- In this case, the increase in the exchange rate from Rs.65 to Rs.70 per dollar shows that the Rupee has weakened.
- With Rs.70, you can now buy one Dollar, whereas previously you needed only Rs.65 to buy the same Dollar.
- This depreciation of the Rupee makes imports more expensive and exports cheaper, which can affect the country's trade balance.
Therefore, the correct answer is option 'A' - The Rupee has depreciated against the Dollar.
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If the equilibrium Rupee-Dollar exchange rate was Rs.65 and now it has become Rs.70 per dollar, then the Rupee has?a)The Rupee has depreciated against the Dollarb)The dollar has depreciated against the Rupeec)The Rupee has appreciated against the dollar.d)None of the aboveCorrect answer is option 'A'. Can you explain this answer?
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