Question

Devaluation of currency leads to?

• A. Expansion of export trade
• B. Contraction of import trade
• C. Expansion of import substituting
• D. All of the above

Answer 1

Answer: (D)

All of the above

Devaluation is the decision to reduce the value of a currency in a fixed exchange rate. A devaluation means that the value of the currency falls. Domestic residents will find imports and foreign travel more expensive. However domestic exports will benefit from their exports becoming cheaper. Currency devaluation may lower productivity, since imports of capital equipment and machinery may become too expensive. Devaluation also significantly reduces the overseas purchasing power of a nation's citizens.