Japan and India are trading partners. Japan's currency is the yen and India's currency is the rupee.

Which of the following happens when the supply of the rupee increases?
Choose 1 answer:
(A) The rupee depreciates and the yen depreciates.
(B) The rupee depreciates and the yen appreciates.
(C) The rupee appreciates and the yen appreciates.
(D) Neither currency will change in value.
(E) The rupee depreciates and the yen is unaffected.

Question

Japan and India are trading partners. Japan's currency is the yen and India's currency is the rupee.

Which of the following happens when the supply of the rupee increases?
Choose 1 answer:
(A) The rupee depreciates and the yen depreciates.
(B) The rupee depreciates and the yen appreciates.
(C) The rupee appreciates and the yen appreciates.
(D) Neither currency will change in value.
(E) The rupee depreciates and the yen is unaffected.

Accepted Answer

***B*** ∻Key Concept∻ ⚹Currency Supply and Exchange Rate Relationship⚹ ∻Explanation∻ ⚹When the supply of a currency, such as the Indian rupee, increases, it typically leads to a depreciation of that currency relative to others. In this case, the rupee would depreciate against the yen, making the yen appreciate in comparison. This is because more rupees are available in the foreign exchange market, reducing its price in terms of other currencies.⚹◊What impact would an increase in the supply of the rupee have on the balance of trade between Japan and India?⍭ Generate me a similar question◊

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