ECONOMICS (CBSE/UGC NET)

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.

Detailed explanation-2: -When an exchange rate changes, the value of one currency will go up while the value of the other currency will go down. When the value of a currency increases, it is said to have appreciated. On the other hand, when the value of a currency decreases, it is said to have depreciated.

Detailed explanation-3: -Examples of currency depreciation If the price of GBP/USD rises from 1.2700 to 1.5000, the dollar would be said to have depreciated in value, and the pound would have appreciated in value – as you would now need more dollars to buy the same number of pounds.

Detailed explanation-4: -Economic effects Thus, depreciation of a currency tends to increase a country’s balance of trade (exports minus imports) by improving the competitiveness of domestic goods in foreign markets while making foreign goods less competitive in the domestic market by becoming more expensive.

Detailed explanation-5: -No, the devaluation of currency is not the same as depreciation. Reduction of the value of currency in floating exchange rate is known as depreciation and reducing the value of currency in fixed exchange rate is known as depreciation.