The value of US dollar changes due to the market forces of demand and supply of foreign exchange i.e from 1 USD = Rs. 81 to 2 USD = Rs 161. What will this phenomenon be termed as?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Appreciation of rupee
- Initially, the exchange rate is 1 USD = Rs. 81.
- In the new scenario, if it is stated that 2 USD = Rs. 161, this translates to 1 USD = Rs. 80.5
Since fewer rupees are required to purchase 1 dollar (80.5 rupees instead of 81 rupees), this indicates that the rupee has appreciated in value against the dollar. Therefore, the correct term for this phenomenon is appreciation of the rupee.