Radha is a dentist, she imports many of her equipments from Australia, earlier for every artificial dental set she use to pay 265 Rs as it was worth 5 dollars, but now the price has gone up i.e. she pays Rs 300 even when the cost of product in terms of dollars is 5 only. According to you, what has happen to the exchange rate?

Depreciation of Indian rupee

The correct answer is Option 2: Depreciation of Indian rupee

The Indian rupee has depreciated, the reason is that the exchange rate has risen. Earlier 1 dollar = Rs 53 after depreciation the exchange rate has become 1 dollar = Rs 60 

Devaluation and depreciation both refer to a decrease in the value of a currency, but they are used in slightly different contexts:

• Depreciation is a general term used to describe a decrease in the value of a currency in a floating exchange rate system, where the value of the currency is determined by market forces. In this context, the Indian rupee has depreciated because it now takes more rupees to buy the same amount of dollars.

• Devaluation specifically refers to a deliberate reduction in the value of a currency by the government or central bank, typically in a fixed or managed exchange rate system. It is an official action taken by authorities to lower the currency’s value relative to other currencies.

In this case, the increase in the amount of rupees needed to purchase the same amount of dollars is an instance of currency depreciation, which reflects market-driven changes. There is no indication of a deliberate action by the Indian government or central bank to reduce the value of the rupee, so the term "devaluation" is not applicable here.