Assume that the exchange rate between the US Dollar and Indian Rupee is $1 = ₹55$. Now if this exchange rate increases to $1 = ₹60$, then in this case the Indian Rupee has ___ in comparison to the US dollar.

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**Solution:**

1. Initially, the exchange rate is $1 = ₹55$, meaning 1 US Dollar can be exchanged for 55 Indian Rupees.

2. When the exchange rate changes to $1 = ₹60$, it means it now takes 60 Indian Rupees to buy 1 US Dollar.

3. Since more Indian Rupees are needed to buy 1 US Dollar, the value of the Indian Rupee has decreased relative to the US Dollar.

4. In a flexible exchange rate system, a decrease in the value of a currency relative to another currency is called **depreciation**.

5. Conversely, if the exchange rate had changed from $1 = ₹60$ to $1 = ₹55$, the Indian Rupee would have **appreciated** because fewer rupees would be needed to buy 1 US Dollar.

**Answer:** depreciated

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