Class 12 Exam > Class 12 Questions > Devaluation of currency is a component of ___...
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Devaluation of currency is a component of _______ exchange rate system.
- a)fixed
- b)flexible
- c)managed floating
- d)Both(b)and(c)
Correct answer is option 'A'. Can you explain this answer?
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Devaluation of currency is a component of _______ exchange rate system...
Fixed exchange rate system:
- In a fixed exchange rate system, the value of a country's currency is pegged to another major currency or a basket of currencies.
- Governments and central banks intervene in the foreign exchange market to maintain the fixed exchange rate.
Devaluation of currency in a fixed exchange rate system:
- Devaluation occurs when a country's central bank intentionally lowers the value of its currency in relation to the currency it is pegged to.
- This can be done to improve the country's trade balance, making exports cheaper and imports more expensive.
- Devaluation can also help boost domestic production and reduce reliance on imports.
Reasons for devaluation in a fixed exchange rate system:
- To correct a trade imbalance by making exports more competitive in foreign markets.
- To stimulate economic growth by increasing demand for domestically produced goods and services.
- To reduce the risk of speculative attacks on the currency.
Effects of devaluation in a fixed exchange rate system:
- Can lead to higher inflation as the cost of imported goods rises.
- May improve the trade balance by making exports more competitive.
- Can help boost economic growth by stimulating domestic production.
In conclusion, devaluation of currency is a component of a fixed exchange rate system where the value of the currency is intentionally lowered to achieve certain economic objectives.
- In a fixed exchange rate system, the value of a country's currency is pegged to another major currency or a basket of currencies.
- Governments and central banks intervene in the foreign exchange market to maintain the fixed exchange rate.
Devaluation of currency in a fixed exchange rate system:
- Devaluation occurs when a country's central bank intentionally lowers the value of its currency in relation to the currency it is pegged to.
- This can be done to improve the country's trade balance, making exports cheaper and imports more expensive.
- Devaluation can also help boost domestic production and reduce reliance on imports.
Reasons for devaluation in a fixed exchange rate system:
- To correct a trade imbalance by making exports more competitive in foreign markets.
- To stimulate economic growth by increasing demand for domestically produced goods and services.
- To reduce the risk of speculative attacks on the currency.
Effects of devaluation in a fixed exchange rate system:
- Can lead to higher inflation as the cost of imported goods rises.
- May improve the trade balance by making exports more competitive.
- Can help boost economic growth by stimulating domestic production.
In conclusion, devaluation of currency is a component of a fixed exchange rate system where the value of the currency is intentionally lowered to achieve certain economic objectives.
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Community Answer
Devaluation of currency is a component of _______ exchange rate system...
Devaluation refers to the decrease in the value of domestic currency as planned by the government under fixed exchange rate.
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Devaluation of currency is a component of _______ exchange rate system.a)fixedb)flexiblec)managed floatingd)Both(b)and(c)Correct answer is option 'A'. Can you explain this answer?
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