APPRECIATION & DEPRECIATION OF RUPEE

Subject : Economics

Context : Indian Rupee fell sharply by 105 paise against the dollar on Wednesday.

Concept :

Appreciation and Depreciation of Currency

In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.
Currency Appreciation: It is an increase in the value of one currency in relation to another currency.
Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances and business cycles.
Currency appreciation discourages a country’s export activity as its products and services become costlier to buy.
Currency Depreciation: It is a fall in the value of a currency in a floating exchange rate system.
Economic fundamentals, political instability, or risk aversion can cause currency depreciation.
Currency depreciation encourages a country’s export activity as its products and services become cheaper to buy.