Question:
The price of a bag increased from \(\$8\) to \(\$12\) in the US and from \(₹400\) to \(₹480\) in India. What is the effect on the dollar in terms of exchange rate?
The price of a bag increased from \(\$8\) to \(\$12\) in the US and from \(₹400\) to \(₹480\) in India. What is the effect on the dollar in terms of exchange rate?
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To check appreciation or depreciation, first calculate the value of \(1\) unit of foreign currency. If its value falls, it depreciates. If its value rises, it appreciates.
Updated On: May 11, 2026
- Revaluated
- Appreciated
- Depreciated
- Devaluated
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The Correct Option is C
Solution and Explanation
Concept:
Exchange rate shows the value of one currency in terms of another currency. In this question, we have to compare the value of dollar in terms of rupees before and after the change in prices. If the rupee value of one dollar decreases, then the dollar depreciates. If the rupee value of one dollar increases, then the dollar appreciates.
Step 1: Calculate the initial exchange rate.
Initially, the price of the bag in the US is: \[ \$8 \] The price of the same bag in India is: \[ ₹400 \] So, we can write: \[ \$8 = ₹400 \] Now, divide both sides by \(8\) to find the value of \(1\) dollar: \[ \$1 = \frac{₹400}{8} \] \[ \$1 = ₹50 \] Therefore, the initial exchange rate is: \[ 1\$ = ₹50 \]
Step 2: Calculate the new exchange rate.
After the price change, the price of the bag in the US is: \[ \$12 \] The price of the same bag in India is: \[ ₹480 \] So, we can write: \[ \$12 = ₹480 \] Now, divide both sides by \(12\): \[ \$1 = \frac{₹480}{12} \] \[ \$1 = ₹40 \] Therefore, the new exchange rate is: \[ 1\$ = ₹40 \]
Step 3: Compare the old and new exchange rates.
Initially: \[ 1\$ = ₹50 \] Now: \[ 1\$ = ₹40 \] The value of one dollar in terms of rupees has fallen from \(₹50\) to \(₹40\). This means one dollar can now purchase fewer rupees than before. So, the dollar has become weaker in terms of rupees.
Step 4: Identify the correct economic term.
When the value of a currency falls under a flexible exchange rate system, it is called depreciation. Here, the dollar value has fallen from \(₹50\) to \(₹40\). Therefore, the dollar has depreciated. Hence, the correct answer is: \[ \boxed{\text{(C) Depreciated}} \]
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