ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a fall in its external value
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a fall in its internal value
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a rise in its external value
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a rise in its internal value
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Detailed explanation-1: -What Is Devaluation? Devaluation is the deliberate downward adjustment of the value of a country’s money relative to another currency, group of currencies, or currency standard. Countries that have a fixed exchange rate or semi-fixed exchange rate use this monetary policy tool.
Detailed explanation-2: -Detailed Solution. The correct answer is a Reduction in the value of a currency vis-a-vis major internationally traded currencies. Devaluation occurs when a country intentionally reduces the value of its currency relative to one or more foreign countries.
Detailed explanation-3: -One such measure is devaluation. It means the value of one currency is reduced against another. We mustn’t confuse it with depreciation, even though both mean one currency loses value against another.
Detailed explanation-4: -Currency depreciation is a fall in the value of a currency in terms of its exchange rate versus other currencies. Currency depreciation can occur due to factors such as economic fundamentals, interest rate differentials, political instability, or risk aversion among investors.
Detailed explanation-5: -reduction in external value /exchange value of currency by the Government.