Question

What is 'appreciation' of domestic currency? What is its likely effect on exports and how?

Answer 1

Currency appreciation means the value of domestic currency becomes costlier in terms of foreign currency. For example, if the exchange rate for $1 = Rs 50 decreases to $1 = Rs 45, then the export of goods to foreign countries will become costlier. This implies that the rupee value is appreciated against the dollar. So, the goods worth Rs 48 for $1 only get exported, and hence, there is a decrease in the demand for exports.