Revaluation is a decrease in the exchange rate in a pegged exchange rate system. As a result:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → the foreign currency becomes cheaper in terms of the domestic currency
Revaluation lowers the exchange rate by official action. We then pay fewer rupees for a dollar. So the dollar becomes cheaper for us and the rupee becomes costlier for foreigners.
The market setting a new rate with no official action would be appreciation in a flexible system, not revaluation.
NCERT (2026-27): Glossary: “Revaluation – A decrease in the exchange rate in a pegged exchange rate system which makes the foreign currency cheaper in terms of the domestic currency.” “Fixed Exchange Rates … On the other hand, a Revaluation is said to occur, when the Government decreases the exchange rate (thereby, making domestic currency costlier) in a fixed exchange rate system.” |