Initially the exchange rate between rupee and dollar was ₹170 = 2 US dollars. The new exchange rate is ₹82 = 1 $. This means that:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Indian rupee is appreciating
Given:
Old rate: ₹170 = 2 US dollars
New rate: ₹82 = 1 US dollar
Old rate per dollar = 170/2 = ₹85
One dollar now costs fewer rupees (82 instead of 85). So the price of the rupee in terms of the dollar has risen. A rise in the price of the domestic currency in terms of foreign currency is called appreciation of the domestic currency.
Option (1) Indian rupee is appreciating — Correct. Each rupee now buys more of a dollar than before.
Option (2) Indian rupee is depreciating — Incorrect. Depreciation would mean more rupees are needed for one dollar. Here fewer are needed.
Option (3) Dollar is appreciating — Incorrect. One dollar now buys ₹82 instead of ₹85, so the dollar has lost value against the rupee.
Option (4) No effect on exchange rate — Incorrect. The rate has changed from ₹85 to ₹82 per dollar.
NCERT (2026-27): “Flexible Exchange Rate …Increase in exchange rate implies that the price of foreign currency (dollar) in terms of domestic currency (rupees) has increased. This is called Depreciation of domestic currency (rupees) in terms of foreign currency (dollars). Similarly, in a flexible exchange rate regime, when the price of domestic currency (rupees) in terms of foreign currency (dollars) increases, it is called Appreciation of the domestic currency (rupees) in terms of foreign currency (dollars). This means that the value of rupees relative to dollar has risen and we need to pay fewer rupees in exchange for one dollar.…” |