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Question

What does devaluation mean?

A
Increment in the value of domestic currency
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B
Decrease in the external value of domestic currency and no change in the internal /domestic value
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C
First increase then decrease in the external value of domestic currency
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D
None of these
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Solution

The correct option is B Decrease in the external value of domestic currency and no change in the internal /domestic value

Devaluation and Depreciation Definition. A devaluation occurs when a country makes a conscious decision to lower its exchange rate in a fixed or semi-fixed exchange rate. A depreciation is when there is a fall in the value of a currency in a floating exchange rate. A currency devalues when its value declines in relation to one or more other currencies. Let's say that on Monday $1 bought five rubles and that today, after the devaluation, it buys 10 rubles (not actual figures). Under this scenario, the ruble has devalued by 50%.


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