Q18. Consider the following statements:
1. In the floating exchange rates, currency values are determined by central bank.
2. Currency depreciation is usually done by a nation’s central bank.
Which of the above statements are correct?
Q18. Consider the following statements:
1. In the floating exchange rates, currency values are determined by central bank.
2. Currency depreciation is usually done by a nation’s central bank.
Which of the above statements are correct?
The correct option is B b) 2 only
A currency war is also known by the less threatening term “competitive devaluation.” In the current era of floating exchange rates, where currency values are determined by market forces, currency depreciation is usually engineered by a nation’s central bank through economic policies that may force the currency lower, such as reducing interest rates or increasingly, quantitative easing (QE).
This introduces more complexities than the currency wars of decades ago, when fixed exchange rates were more prevalent and a nation could devalue its currency by the simple expedient of lowering the “peg” to which its currency was fixed.
b) 2 only
A currency war is also known by the less threatening term “competitive devaluation.” In the current era of floating exchange rates, where currency values are determined by market forces, currency depreciation is usually engineered by a nation’s central bank through economic policies that may force the currency lower, such as reducing interest rates or increasingly, quantitative easing (QE).
This introduces more complexities than the currency wars of decades ago, when fixed exchange rates were more prevalent and a nation could devalue its currency by the simple expedient of lowering the “peg” to which its currency was fixed.
