Q. 22

(a) Distinguish b

Answer :

(a) Appreciation of foreign currency refers to an increase in the value of domestic currency in terms of a foreign currency. Exports to foreign countries, for example, become relatively cheaper.

Depreciation of home currency refers to the decrease in the value of domestic currency with respect to foreign currency. It makes the home currency less valuable and more of it would be required to purchase foreign currency.

(b) The current account measures a country's imports and exports of goods and services over a defined period of time, in addition to earnings from cross-border investments, and transfer payments. A current account surplus is a positive current account balance, indicating that a nation is a net lender to the rest of the world. The countries with current account surpluses finance the current account deficits around the world.

(c) One source of supply of foreign currency for a country could be through foreign investment in the domestic country. This could be encouraged through either some public private partnerships within the country with some foreign companies, or through joint ventures encouraged by the government wherein foreign companies invest in these ventures.

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