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varactor diode has a capacitance which depends on the applied voltage.So if a random message signal is applied as the voltage to a varactor which is a part of a tank circuit,then the frequency of the tank circuit varies in accordance with the message.Thus an FM wave can be generated.
FM can be generated by means of direct method or indirect method( form PM) ...
in the case of Direct method, circuit reactance will varied..since circuit reactance will determine frequency of output signal.....if reactance is varied w.t .r mesaage signal than output signal freq. will be varied.it is nothing but FM signal..
for varactor diode,under reverse bias its capacitance varies inversely...
Vα (1/√C)**n...n a constant dependinfg upon doping profile
if reverse bias varied inaccordance with message ,ouptut is an FM signal
Note that most diodes have these varactor properties. For instance, a common 1N4007 rectifier diode will change its capacitance between 5-15pF when reversed biased between 1-15V. The thing that makes this different from a purposely manufactured varactor diode is the Q factor. The 1N4007 will only work in fairly low frequency circuits.