The Government decreases the exchange rate in the fixed exchange rate system. What is the term used for that ?
Answer & explanation
Correct answer: option 4
The correct answer is option (4) : Revaluation
In a fixed exchange rate system, when some government action increases the exchange rate (thereby, making domestic currency cheaper) is called Devaluation. On the other hand, a Revaluation is said to occur, when the Government decreases the exchange rate (thereby, making domestic currency costlier) in a fixed exchange rate system.
Appreciation: This refers to an increase in the value of a currency in a floating exchange rate system or under a fixed exchange rate regime if the currency is strengthened by market forces.
Depreciation: This generally refers to a decrease in the value of a currency in a floating exchange rate system due to market forces.