Question

Differentiate between devaluation and depreciation.

Answer 1

Difference between devaluation and depreciation is as follows:

$\begin{array}{ccc}& \text{Devaluation}& \text{Depreciation}\\ 1.& \text{It means the decrease in the price of}& \\ & \text{domestic currency under fixed exchange}& \text{When the value of currency falls as compared to other currencies, it is known as depreciation.}\\ & \text{rates.}& \\ 2.& \text{It takes place due to official action}& \text{It takes place due to market forces.}\\ & \text{(by government)}& \\ 3.& \text{It takes place under fixed (pegged)}& \text{It takes place under flexible exchange}\\ & \text{exchange rate system.}& \text{rate system.}\end{array}$