Question

What does devaluation mean?

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

Answer 1

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%.