ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Value changes are the result of supply and demand. This is true with fiat currency as well as any other asset that’s subject to market forces. When the supply of money increases or decreases, the relative value of that money rises or falls with those forces. Demand for certain currencies can fluctuate, as well.

Detailed explanation-2: -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.

Detailed explanation-3: -The majority of the world’s currencies are bought and sold based on flexible exchange rates, meaning their prices fluctuate based on the supply and demand in the foreign exchange market. Increased demand for a particular currency or a shortage in its availability will result in a price increase.

Detailed explanation-4: -Currency Supply and Demand Currencies of countries offering higher interest rates tend to increase in value, all else being equal. This is because fixed-income investors flock to higher interest rates, which increases the currency’s demand and value.