ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Explanation: The term “depreciation of domestic currency” refers to a decrease in the value of a domestic currency in terms of a foreign currency as a result of a rise in the foreign exchange market’s foreign exchange rate.

Detailed explanation-2: -Devaluation is the fall in the value of domestic currency in relation to foreign currency. It is planned by the Central Bank in situation, when exchange rate is not determined by the forces of demand and supply.

Detailed explanation-3: -Depreciation, on the other hand, is the fall in the value of domestic currency in relation to foreign currency in a situation when exchange rate is determined by the forces of supply and demand in the international money market.

Detailed explanation-4: -Depreciation of the currency implies that more rupees are required to buy a dollar, or that a dollar can now buy goods worth more rupees than before. Accordingly. exports are expected to increase, while imports will take a hit.

Detailed explanation-5: -On the one hand, devaluation happens when a government makes monetary policy to reduce a currency’s value; on the other hand, depreciation happens as a result of supply and demand in a free foreign exchange market. Devaluation is a decision that makes a currency lose value.