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InterviewSolution
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‘Devaluation and Depreciation of currency are one and the same thing/ Do you agree ? How do they affect the exports of a country ? |
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Answer» Depreciation and devaluation both imply a fall in external value of a currency; however the term depreciation is used under the floating exchange rate system i.e., when the exchange rate system is determined by the combined market forces of demand and supply. A currency loses or gains value because of fluctuations in demand and supply. The term devaluation is used in a system of fixed exchange rates. In this system, the exchange value of a currency is decided by the government. Devaluation of currency is the deliberate action of the government. Depreciation and devaluation of a currency normally encourages exports from a country, as exports become cheaper for the foreign nationals and foreign currency can now buy more of domestic goods, i.e., the international competitiveness of the goods and services of such a nation gets better. |
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