Which statement describes currency appreciation?

Which statement describes currency appreciation?

• A. A fall in the value of one currency in terms of other currencies.
• B. An unchanged value of the currency relative to others.
• C. A rise in the value of one currency in terms of other currencies.
• D. A rise in domestic prices with no currency value change.

Answer: (C)

Currency appreciation means the currency strengthens relative to other currencies. In foreign exchange terms, its value rises, so one unit of that currency can buy more of another currency. For example, if the dollar appreciates against the euro, a dollar now buys more euros than before. This can happen when demand for the currency rises due to factors like higher interest rates, a stronger economy, or favorable capital inflows. As a result, imports typically become cheaper for residents, while exports become more expensive for foreign buyers, which can affect trade and inflation dynamics. The statement that describes a rise in the value of one currency in terms of other currencies is the correct description of appreciation. The other descriptions describe depreciation (a fall in value), no change (unchanged value), or inflation without any change in currency value, none of which capture the idea of the currency strengthening against others.

Currency appreciation means the currency strengthens relative to other currencies. In foreign exchange terms, its value rises, so one unit of that currency can buy more of another currency. For example, if the dollar appreciates against the euro, a dollar now buys more euros than before. This can happen when demand for the currency rises due to factors like higher interest rates, a stronger economy, or favorable capital inflows. As a result, imports typically become cheaper for residents, while exports become more expensive for foreign buyers, which can affect trade and inflation dynamics.

The statement that describes a rise in the value of one currency in terms of other currencies is the correct description of appreciation. The other descriptions describe depreciation (a fall in value), no change (unchanged value), or inflation without any change in currency value, none of which capture the idea of the currency strengthening against others.