Question

20.       If Country X is experiencing higher inflation than Country Y, the currency of Country X will...

20.       If Country X is experiencing higher inflation than Country Y, the currency of Country X will ____ with respect to the currency of Country Y over time.

____

  1. Appreciate
  2. Depreciate
  3. Have no impact
  4. Stabilize as the government can control the foreign exchange market
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Answer #1

Currency of any country is highly dependent on the inflation, if the inflation is more then currency will depreciate more and if there is less inflation than the currency will stable more and not depreciate.

It means there is direct relationship between inflation and currency price, if depreciation is high than currency will depreciate and when the inflation will reduce than currency will appreciate.

So as per the given explanation,

Answer =Option B = Depreciate

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