Which of the following statement is true in regards to appreciation of domestic currency?

1. It implies increase in the value of domestic currency terms of foreign currency
2. It implies that with 1 dollar, more goods can be purchased from India
3. It means 1 dollar can be exchanged for less rupees
4. It will encourage exports to USA from India

1 and 3

The correct answer is option 2: 1 and 3

• Statement 1 is true because appreciation of domestic currency means an increase in its value relative to a foreign currency.
• Statement 3 is true because if the domestic currency appreciates, fewer units of it are needed to exchange for one unit of foreign currency (e.g., 1 dollar can be exchanged for fewer rupees).

Statements 2 and 4 are incorrect because:

• Statement 2 implies depreciation of the domestic currency, not appreciation.
• Statement 4 is false because an appreciation of the domestic currency would make exports more expensive for foreign buyers, thus discouraging exports.

Appreciation of currency means that there is increase  in the value of domestic currency terms of foreign currency. For example: if price of 1 dollar falls from Rs 80 to Rs 60. It implies that with 1 dollar less goods can be purchased from India as now only goods worth Rs 60 will be given. Appreciation of domestic currency make imports cheaper for the domestic country residents, due to which the imports increases. Earlier we had to pay Rs80 for importing a product worth 1 dollar, now that will decrease to Rs60.