| Column I | Column II | ||
| A. | Increase in demand for foreign currency, supply remaining unchanged | (i) | Depreciation of domestic currency. |
| B. | Decrease in supply of foreign currency, demand remaining unchanged | (ii) | Appreciation of domestic currency. |
| C. | Increase in supply of foreign currency, demand remaining unchanged | (iii) | Devaluation of domestic currency |
A) A - (i)
B) B - (ii)
C) C - (iii)
D) D - (iv)
Correct Answer: A
Solution :
Increase in demand for foreign currency leads to rise in foreign exchange rate. This is a situation of depreciation of domestic currency.
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