Fixed Exchange Rate: This is an exchange rate system under which there is an intervention by the government to control the fluctuation and this is known as fixed exchange rate. Nominal Exchange Rate: The rate at which currencies are exchanged in the exchange market is known as nominal exchange rate. Flexible Exchange Rate: This is an exchange rate system under which there is no intervention by the government, rather the rate is determined by demand and supply phenomenon. Appreciation of a Currency: It is referred as the rise in the value of a currency in comparison to other currencies. Consider a situation in which the value of one dollar is equal to INR 50. When it becomes equal to INR 60, it means the dollar has appreciated in comparison to INR. Depreciation of a Currency: It is referred as the reduction in the value of a currency in comparison to other currencies. Consider a situation in which the value of one dollar is equal to INR 50. When it becomes equal to INR 40, it means the dollar has depreciated in comparison to INR.

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Chapter 18, Problem 6P

To determine

Concept introduction:

Fixed Exchange Rate: This is an exchange rate system under which there is an intervention by the government to control the fluctuation and this is known as fixed exchange rate.

Nominal Exchange Rate: The rate at which currencies are exchanged in the exchange market is known as nominal exchange rate.

Flexible Exchange Rate: This is an exchange rate system under which there is no intervention by the government, rather the rate is determined by demand and supply phenomenon.

Appreciation of a Currency: It is referred as the rise in the value of a currency in comparison to other currencies. Consider a situation in which the value of one dollar is equal to INR 50. When it becomes equal to INR 60, it means the dollar has appreciated in comparison to INR.

Depreciation of a Currency: It is referred as the reduction in the value of a currency in comparison to other currencies. Consider a situation in which the value of one dollar is equal to INR 50. When it becomes equal to INR 40, it means the dollar has depreciated in comparison to INR.

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