ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Fall in the value of domestic currency in terms of foreign currency as a deliberate step adopted by the govt. under Fixed exchange rate system
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Rise in the value of domestic currency in terms of foreign currency as a deliberate step adopted by the govt. under Fixed exchange rate system
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Fall in the value of domestic currency in terms of foreign currency as a deliberate step adopted by the govt. under FLEXIBLE exchange rate system
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None of the above
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Detailed explanation-1: -Devaluation is the deliberate downward adjustment of a country’s currency value. The government issuing the currency decides to devalue a currency. Devaluing a currency reduces the cost of a country’s exports and can help shrink trade deficits.
Detailed explanation-2: -Devaluation of currency mainly occurs in countries with fixed exchange rate. It refers to the reduction in the value of domestic currency by the government.
Detailed explanation-3: -Devaluation is reduction in value of domestic currency by the government under fixed exchange rate system.It is a deliberate effort. On the other hand, Depreciation is decrease in value of domestic currency due to market forces of demand and supply under flexible exchange rate system.
Detailed explanation-4: -Devaluation of a currency decreases the foreign value of domestic currency. Devaluation also increases the debt burden of foreign-denominated loans when priced in the home currency.
Detailed explanation-5: -A devaluation of the domestic currency raises the price of foreign goods relative to the domestic goods. As prices of imports are increasing, the total payments to importers could rise or fall depending on the elasticities of demand for imports.