ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -Determination of Exchange Rates The demand curve for dollars slopes downward because foreigners demand a greater quantity of dollars as the local currency depreciates in value. The supply curve for dollars slopes upward because Americans supply more dollars as the dollar appreciates relative to the peso.

Detailed explanation-3: -An increase in a country’s money supply causes its currency to depreciate. A decrease in a country’s money supply causes its currency to appreciate.

Detailed explanation-4: -The economics of supply and demand dictate that when demand is high, prices rise and the currency appreciates in value. In contrast, if a country imports more than it exports, there is relatively less demand for its currency, so prices should decline.