Appreciation of Currency: It is referred to as the rise in the value of currency in comparison to other currencies. Consider a situation in which value of one dollar is equal to INR 50. When it becomes equal to INR 60, it means dollar has appreciated in comparison to INR. Depreciation of Currency: It is referred to as the reduction in the value of currency in comparison to other currencies. Consider a situation in which value of one dollar is equal to INR 50. When it becomes equal to INR 40, it means dollar has depreciated in comparison to INR. Equilibrium in Exchange Market: It is the point where demand for a currency is equal to supply of currency in the exchange market. Under fixed exchange rate government intervention ensures such point. Fixed Exchange Rate: Exchange rate system under which there is intervention by the government to control the fluctuation 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: Exchange rate system under which there is no intervention by government rather the rate is determined from demand and supply phenomenon.

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Chapter 33, Problem 9P

To determine

Concept Introduction:

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

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

Equilibrium in Exchange Market: It is the point where demand for a currency is equal to supply of currency in the exchange market. Under fixed exchange rate government intervention ensures such point.

Fixed Exchange Rate: Exchange rate system under which there is intervention by the government to control the fluctuation 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: Exchange rate system under which there is no intervention by government rather the rate is determined from demand and supply phenomenon.

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