Under which exchange rate appreciation and depreciation takes place and under which exchange rate devaluation and revaluation takes place respectively?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Under flexible exchange rate and fixed exchange rate respectively
A change in a currency’s value can come from the market or from the government. Under a flexible exchange rate, demand and supply move the rate: a market-driven fall in the currency’s value is depreciation and a rise is appreciation. Under a fixed exchange rate the rate changes only when the government changes it: lowering it is devaluation and raising it is revaluation.
Depreciation and devaluation both leave the currency weaker; what differs is who makes the change, the market or the government.
Why the other options are incorrect
Option (1) Under fixed exchange rate and flexible exchange rate respectively — Incorrect. The two systems are the wrong way round.
Option (3) Under rigid exchange rate and reliable exchange rate respectively — Incorrect. There are no such exchange rate systems.
Option (4) Under foreign exchange rate and domestic exchange rate respectively — Incorrect. The foreign exchange rate is the price of one unit of foreign currency in domestic currency; every system has one, so it is not a system. There is no such term as a domestic exchange rate.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 11-05 S1 21-05 S1* | – | – | – | – |
* A similar question.
NCERT (2025-26): “Flexible Exchange Rate … This exchange rate is determined by the market forces of demand and supply. It is also known as Floating Exchange Rate.… Fixed Exchange Rates … 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.” |