Differentiate between devaluation and depreciation.

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Solution

Devaluation

Depreciation

It occurs when the currency exchange rate is officially lowered under fixed exchange rate system.

When the value of currency falls as compared to other currencies, it is known as depreciation.

It exists under fixed exchange rate.

It exists under flexible exchange rate.

It is due to government’s decision

It is due to the demand and supply forces.

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Devaluation	Depreciation
It occurs when the currency exchange rate is officially lowered under fixed exchange rate system.	When the value of currency falls as compared to other currencies, it is known as depreciation.
It exists under fixed exchange rate.	It exists under flexible exchange rate.
It is due to government’s decision	It is due to the demand and supply forces.