BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increased export and import
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Trade deficit
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Increased export and improvement in balance of payment
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Increased import & foreign reserve deficiency
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Detailed explanation-1: -Devaluation is employed to eliminate persistent balance-of-payments deficits. For example, a devaluation of currency will decrease prices of the home country’s exports that are purchased in the import country’s currency.
Detailed explanation-2: -Yes, devaluation helps in boosting exports because the goods become relatively cheaper for foreign consumers as the value of domestic currency goes down when compared to foreign currency. Devaluation helps in reducing the trade deficit.
Detailed explanation-3: -According to the monetary approach to the exchange rate, a devaluation or depreciation decreases the real supply of money, resulting in an excess demand for money. This leads to hoarding and an increase in the trade balance., in general, improves trade balance in the long run.
Detailed explanation-4: -If a country’s currency depreciates in value then this means goods and services produced in that country become more affordable to the rest of the world, which boosts demand for exports.