Let the exchange rate between US dollar and Indian rupee be ₹60/US dollar. Now it changes to ₹40/US dollar. What is the reason behind appreciation of Indian rupee?
Answer & explanation
Correct answer: option 4
When demand is greater than supply, the price increases. Applying this in currency market, when supply of US dollar will be increased and demand will be decreased, there will be excess supply of US dollar leading to decrease in its price i.e. its depreciation. Depreciation of US dollar means appreciation of Indian rupee.