Foreign exchange policy: What does ‘‘devaluation’’ of a currency mean? Focus on the exchange-rate meaning under a fixed/managed regime. Choose the correct option.
General Knowledge
Indian Economy
Difficulty: Easy
Choose an option
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AOfficial reduction in the external value of the domestic currency
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BMarket-driven appreciation of the domestic currency
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CAbolition of multiple exchange rates
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DTemporary suspension of convertibility
Answer
Correct Answer: Official reduction in the external value of the domestic currency
Explanation
Concept
- Devaluation is an official downward adjustment of a currency’s parity under fixed/managed rates, making exports cheaper and imports costlier.
Final AnswerOfficial reduction in the external value of the domestic currency