Floating or flexible exchange rate is determined by the market forces of demand and supply. In a completely floating exchange rate system, the Central Bank do not interfere in the foreign exchange market. Demand for a foreign currency increases in cases of increased imports or international travels or higher investments in securities of other countries. This increase the exchange rate and depreciates the domestic currency. Depreciation has a positive price impact on exports which increases and negative impact on imports which decreases.

What can have the similar impact on exchange rate as depreciation of the currency?

Devaluation

The correct answer is Option 3: Devaluation.

Devaluation is a deliberate reduction in the value of a country's currency relative to other currencies. This is typically done by the central bank of a country selling its own currency in exchange for foreign currency. This will increase the supply of the domestic currency and decrease the demand for it, which will lead to a depreciation of the currency.

Appreciation, revaluation, and dirty floating all have the opposite effect of depreciation. Appreciation is an increase in the value of a country's currency relative to other currencies. Revaluation is an official increase in the value of a country's currency by the central bank. Dirty floating is a system in which the central bank intervenes in the foreign exchange market to prevent the exchange rate from fluctuating too much.

Therefore, the only option that has the same impact on the exchange rate as depreciation of the currency is devaluation.