A ............ in the price of the domestic currency in terms of a foreign currency is referred to as .............

Analyze the question The question asks what we call a change in the price (value) of the domestic currency measured in a foreign currency. We need the pair of words that correctly match.

Explain the concept

• Appreciation: a rise in the value of a currency relative to another currency (under a floating exchange rate system).
• Depreciation: a fall in the value of a currency relative to another currency (under a floating exchange rate system).
• Devaluation and revaluation are similar, but they are deliberate government actions under a fixed exchange rate system.

Solution Take the naira as the domestic currency and the dollar as the foreign currency.

• If the naira's price in dollars decreases (for example, ₦1 used to buy $0.0013 and now buys only$0.0011), the naira has become weaker. That is depreciation.
• If the naira's price in dollars increases, the naira has become stronger. That is appreciation.

Checking the options:

• A. Decrease, appreciation: wrong, because a decrease means depreciation.
• B. Increase, de-appreciation: "de-appreciation" is not a standard term, and an increase would be appreciation.
• C. Decrease, depreciation: correct pairing.
• D. Increase, consolidation: "consolidation" is not an exchange rate term.

Answer: C. Decrease, depreciation

Exam tip: Match the direction word to the matching term. Down means depreciation and up means appreciation. Also remember that "devaluation" and "revaluation" are used when the government deliberately changes the rate, while "depreciation" and "appreciation" come from market forces.