Question

If a nation’s currency doubles in value on foreign exchange markets, the currency is said to ________, reflecting a change in the ________ exchange rate.

a. appreciate, nominal
b. appreciate, real
c. depreciate, nominal
d. depreciate, real

Answer 1

Option (a) is correct.

Step-by-step explanation:

When there is an improvement or increase in the value of currency of a particular then this will result in an appreciation of currency of that particular nation. This will affect the nominal exchange rate not the real exchange rate.

Nominal exchange rate refers to the rate at which currency of one nation is exchanged for another currency. Therefore, if there is any in the change in the value of a particular nation then this will affect the nominal exchange rate.

For example:

Nominal exchange rate between India and U.S:

$1 = 71.08 rupees