The foreign exchange market is where currencies are traded. Currencies are important because they allow us to purchase goods and services locally and across borders. International currencies need to be exchanged to conduct foreign trade and business. If you are living in the United States and want to buy cheese from France, then either you or the company from which you buy the cheese has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) for euros. The same goes for traveling. A French tourist in Egypt can’t pay in euros to see the pyramids because it’s not the locally accepted currency. The tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate. 

Recently, exchange rate of Indian currency with respect to dollar has changed. Earlier the rate was Rs 70-75 as to 1 dollar. But now, the value has increased to Rs 80 as to 1 dollar. 

Which of the following option is true regarding the above statement?

The Indian rupee has depreciated  

The correct answer is Option 1: The Indian rupee has depreciated 

Currency depreciation is the fall in the value of a currency. Depreciation of the rupee means that the rupee has lost value against the dollar. It indicates that the rupee is now weaker than it was earlier.

Here’s what each term means:

• Depreciation: This occurs when the value of a currency falls relative to another currency. In this case, since it takes more rupees to buy a dollar, the rupee has depreciated.

• Appreciation: This occurs when the value of a currency rises relative to another currency. Here, since the rupee has become weaker, it is not appreciating.

• Devaluation: This is a deliberate decrease in the value of a currency by its government, typically under a fixed exchange rate system. The statement does not specify that the change was deliberate or governmental.

• Revaluation: This is a deliberate increase in the value of a currency by its government, typically under a fixed exchange rate system. The statement does not indicate that this was a government action.