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Currency Exchange Rates

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If the exchange rate has changed from 1 U.S. dollar to 5 foreign currency units (FCUs) to a rate of 1 U.S. dollar to 5.5 FCUs,

The U.S. dollar has appreciated by 10%.
The U.S. dollar has depreciated by 10%.
The FCU has appreciated by 20%.
The FCU has depreciated by 20%.

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (A) is correct. A single U.S. dollar now fetches more FCUs than before, indicating a gain in purchasing power (appreciation). The spread is 10% [(5.5 – 5.0) ÷ 5.0].

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