Understanding Currency Depreciation

The question asks us to identify what happened to the Indian Rupee's value when the exchange rate changed from \$1 = 60 Indian Rupees (INR) last year to \$1 = 65 Indian Rupees (INR) today. To answer this, we need to understand the concepts of currency appreciation and depreciation.

Exchange Rate Dynamics

An exchange rate tells us how much one currency is worth in terms of another. For example, if \$1 = 60 INR, it means you need 60 Indian Rupees to buy one US Dollar.

• Currency Appreciation: A currency appreciates when its value increases relative to another currency. This means you need less of that currency to buy the same amount of the other currency. For instance, if the Rupee appreciated, \$1 might now cost 55 INR instead of 60 INR.
• Currency Depreciation: A currency depreciates when its value decreases relative to another currency. This means you need more of that currency to buy the same amount of the other currency. For instance, if the Rupee depreciated, \$1 might now cost 65 INR instead of 60 INR.

Analyzing the Indian Rupee's Value Change

Let's look at the given figures for the Indian Rupee and the US Dollar:

• Last year: \$1 = 60 INR
• Today: \$1 = 65 INR

To purchase one US Dollar, you needed 60 Indian Rupees last year. Today, you need 65 Indian Rupees to purchase one US Dollar. Since you now need more Indian Rupees to buy the same amount of US Dollars (\$1), it indicates that the purchasing power of the Indian Rupee has decreased. In other words, the Indian Rupee has become weaker compared to the US Dollar.

This decrease in the value of the Indian Rupee relative to the US Dollar is known as depreciation.

Evaluating the Options

• 1. depressed: While 'depressed' can refer to a state of low economic activity, it is not the precise economic term used to describe a fall in currency value in exchange rate contexts.
• 2. depreciated: This term accurately describes the situation. The Indian Rupee has lost value against the US Dollar because it now takes more Rupees to buy one Dollar.
• 3. appreciated: This would mean the Indian Rupee's value increased. If the Rupee appreciated, you would need fewer Rupees to buy one Dollar (e.g., \$1 = 55 INR). This is the opposite of what happened.
• 4. stabilized: This means the value has remained constant or become steady. In this case, the value has clearly changed from 60 INR to 65 INR, so it has not stabilized.

Therefore, based on the change in the exchange rate where more Indian Rupees are required to buy one US Dollar, the Indian Rupee has depreciated.