Question

The value of the US dollar changes due to the market forces of demand and supply of foreign exchange i.e., from 1 USD = 81 to 2 USD = 161. What will this be termed as?

• A. Appreciation of rupee
• B. Depreciation of rupee
• C. Revaluation of rupee
• D. Devaluation of rupee

Answer 1

The Correct Option is B

An exchange rate shift from 1 USD = 81 INR to 2 USD = 161 INR signifies a decrease in the rupee's value against the US dollar. This can be analyzed as follows:

1. The initial exchange rate was 1 USD = 81 INR.
2. Following the change, the rate is 2 USD = 161 INR. To determine the rate per US dollar, we divide: 161 / 2 = 80.5 INR per USD.
3. Comparing the initial rate (81 INR/USD) with the new rate (80.5 INR/USD) reveals the following:
   • If the number of rupees required for 1 USD increases, the rupee has depreciated.
   • If the number of rupees required for 1 USD decreases, the rupee has appreciated.
4. As the cost of 1 USD has decreased from 81 INR to 80.5 INR, this indicates a decline in the rupee's value relative to the US dollar.

This phenomenon is known as the Depreciation of the rupee.