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Question

Which of the following steps improve adverse Balance of Payments?


A
Over-valuation
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B
Devaluation
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C
Demonetization
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D
None of these
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Solution

The correct option is B Devaluation
An adverse balance means more money leaves a country than enters it. An adverse balance is a strongly negative sign for that country's economy. Devaluation is reduction in the exchange value of a country's monetary unit in terms of gold, silver, or foreign monetary units. Devaluation is employed to eliminate persistent balance-of-payments deficits. A downward shift in the value of a nation's currency makes it more expensive for its citizens to buy imports and increases the competitiveness of their exports, thus helping to correct a deficit in the Balance of Payments.

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