Which one of the following statements is the MOST accurate?
A) Appreciation is a rise in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed.
B) Appreciation is a fall in E when the exchange rate floats while revaluation is a fall in E when the exchange rate is fixed.
C) Appreciation is a fall in E when the exchange rate is fixed while revaluation is a fall in E when the exchange rate is flexible.
D) Appreciation is a fall in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed.
E) Appreciation is a rise in E when the exchange rate floats while revaluation is a rise in E when the exchange rate is fixed.

Question

Quizplus · Accepted Answer

Appreciation refers to an increase in the value of a country's currency relative to another country's currency. In a floating exchange rate system, appreciation would result in a lower exchange rate (less foreign currency required to purchase domestic currency). Therefore, option B is the only accurate statement. Revaluation refers to a deliberate adjustment in the exchange rate made by a government or central bank. In a fixed exchange rate system, a revaluation would result in an increase in the exchange rate, which means that more domestic currency is required to buy foreign currency.

Which One of the Following Statements Is the MOST Accurate