Under flexible exchange rate, when the price of domestic currency in terms of for eign currency increases, it is called _______.

The correct option is: Appreciation of domestic currency.

To understand why this is correct, let us break down the concepts involved step-by-step:

1. Exchange Rate Systems:
Under a flexible (or floating) exchange rate system, the value of a currency is determined by the market forces of demand and supply. This is in contrast to a fixed exchange rate system, where the government or central bank sets and pegs the currency value.

2. Understanding the Currency Value Increase:
The question states that the "price of domestic currency in terms of foreign currency increases".
For example, if initially 1 US Dollar (foreign currency) = 80 Indian Rupees (domestic currency), then the price of 1 Rupee in terms of Dollars is 1/80 = 0.0125 USD.
If this price increases to, say, 0.0150 USD, it means 1 Rupee can now buy more Dollars than before. In other words, the domestic currency has become stronger or more valuable.

3. Distinguishing the Options:
• Appreciation: This refers to an increase in the value of a domestic currency relative to a foreign currency under a flexible exchange rate system due to market forces.
• Depreciation: This is a decrease in the value of a domestic currency under a flexible exchange rate system.
• Revaluation: This is an official increase in the value of a currency, but it occurs specifically under a fixed exchange rate system by government decision.
• Devaluation: This is an official decrease in the value of a currency under a fixed exchange rate system.

Since the increase in the price of the domestic currency occurs under a flexible exchange rate system, it is termed as Appreciation of domestic currency.