Jimmy imported a crockery set which was of 10 dollar and paid Rs 700 for it 2 years back, but now that same crockery set was gifted to him by his friend and the cost for that 10 dollar set reduced to 500 only. What do you think happened?

Either 1 or 2

The correct answer is Option 4: Either 1 or 2

In this scenario, the crockery set initially cost Rs 700 for a $10 item, but now the same set is valued at Rs 500 for $10. This means it takes fewer rupees to buy the same amount of dollars, indicating that the value of the domestic currency (rupee) has increased relative to the dollar.

Revaluation is the term used when exchange rate is influenced due to government whereas, appreciation is the term used when exchange rate is influenced due to market forces of demand and supply.

In both the case the exchange rate falls. Thus, the answer is option 4 i.e. either 1 or 2