Question : In the context of foreign exchange rates, what does the term "depreciation" refer to?
Option 1: Increase in the value of a currency
Option 2: Decrease in the value of a currency
Option 3: Stable value of a currency
Option 4: Convertibility of a currency
Correct Answer: Decrease in the value of a currency
Solution : The correct answer is (b) Decrease in the value of a currency.
In the context of foreign exchange rates, the term "depreciation" refers to a decrease in the value of a currency relative to other currencies. When a currency depreciates, it requires more units of that currency to purchase a fixed amount of another currency. In other words, the currency becomes weaker in relation to other currencies.
Currency depreciation can occur due to various factors, such as economic factors, market forces of supply and demand, changes in interest rates, inflation differentials, political instability, and market sentiment. Depreciation of a currency can have both positive and negative effects on a country's economy. It can make exports more competitive and boost tourism and foreign investment, but it can also increase the cost of imports and potentially lead to inflationary pressures.
It is important to note that depreciation and appreciation are opposite concepts. Appreciation refers to an increase in the value of a currency.
Question : In the context of foreign exchange rates, what does the term "appreciation" refer to?
Question : In the foreign exchange market, what does the term "liquidity" refer to?
Option 1: The ease of converting a currency into another currency
Option 2: The profitability of currency trading
Option 3: The stability of exchange rates
Option 4: The demand for a currency
Question : What is the primary objective of a country when it undertakes currency devaluation?
Option 1: To increase the value of its currency
Option 2: To stabilize the exchange rate
Option 3: To reduce the value of its currency
Option 4: To achieve currency convertibility
Question : What is the term used to describe the practice of pegging a currency to a more stable foreign currency?
Option 1: Fixed exchange rate
Option 2: Flexible exchange rate
Option 3: Managed float exchange rate
Option 4: Currency board arrangement
Question : In the foreign exchange market, what does the term "spread" refer to?
Option 1: The difference between the bid and ask prices
Option 2: The difference between the spot and forward rates
Option 3: The difference between the current and historical exchange rates
Option 4: The difference between the domestic and foreign interest rates
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