Commerce Exam > Commerce Questions > Currency Depreciation is aa)fall in the value...
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Currency Depreciation is a
- a)fall in the value of a currency in a floating exchange rate system.
- b)Reduction in the price of foreign currency in terms of domestic currencies in the market
- c)Reduction in the price of domestic currency in the foreign exchange market by the govt
- d)None of These
Correct answer is option 'A'. Can you explain this answer?
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Currency Depreciation is aa)fall in the value of a currency in a float...
The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation. Machinery, equipment, currency are some examples of assets that are likely to depreciate over a specific period of time. ...
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Currency Depreciation is aa)fall in the value of a currency in a float...
Depreciation is a reduction in the price of domestic currency in terms of all foreign currencies by the government.
Depreciation refers to the decline in the value of a currency relative to other currencies in the foreign exchange market. It is typically caused by various factors such as changes in the supply and demand of currencies, economic indicators, and government policies.
The correct answer is option 'A' because:
1. Definition of depreciation:
Depreciation is the process by which a currency loses value relative to other currencies. It means that one unit of the domestic currency can buy fewer units of foreign currency.
2. Reduction in the price of domestic currency:
When a currency depreciates, its value decreases compared to other currencies. This reduction in value means that the price of the domestic currency decreases in terms of all foreign currencies.
3. Government's role:
The government plays a crucial role in managing the value of its currency. It can influence the exchange rate through various policies, including interventions in the foreign exchange market. When a government wants to depreciate its currency, it can sell its own currency in the foreign exchange market, increasing the supply and reducing its price.
4. Effects of depreciation:
Depreciation can have both positive and negative effects on the economy. On one hand, it can make exports cheaper and more competitive in foreign markets, boosting export industries and potentially increasing employment. On the other hand, it can make imports more expensive, leading to higher prices for imported goods and potentially causing inflation.
5. Context of the question:
The question specifically asks about the reduction in the price of domestic currency in terms of all foreign currencies by the government. Option 'A' correctly identifies this as the definition of depreciation.
In conclusion, depreciation refers to the reduction in the price of domestic currency in terms of all foreign currencies by the government. It is an important concept in international trade and finance, with implications for a country's competitiveness and economic stability.
Depreciation refers to the decline in the value of a currency relative to other currencies in the foreign exchange market. It is typically caused by various factors such as changes in the supply and demand of currencies, economic indicators, and government policies.
The correct answer is option 'A' because:
1. Definition of depreciation:
Depreciation is the process by which a currency loses value relative to other currencies. It means that one unit of the domestic currency can buy fewer units of foreign currency.
2. Reduction in the price of domestic currency:
When a currency depreciates, its value decreases compared to other currencies. This reduction in value means that the price of the domestic currency decreases in terms of all foreign currencies.
3. Government's role:
The government plays a crucial role in managing the value of its currency. It can influence the exchange rate through various policies, including interventions in the foreign exchange market. When a government wants to depreciate its currency, it can sell its own currency in the foreign exchange market, increasing the supply and reducing its price.
4. Effects of depreciation:
Depreciation can have both positive and negative effects on the economy. On one hand, it can make exports cheaper and more competitive in foreign markets, boosting export industries and potentially increasing employment. On the other hand, it can make imports more expensive, leading to higher prices for imported goods and potentially causing inflation.
5. Context of the question:
The question specifically asks about the reduction in the price of domestic currency in terms of all foreign currencies by the government. Option 'A' correctly identifies this as the definition of depreciation.
In conclusion, depreciation refers to the reduction in the price of domestic currency in terms of all foreign currencies by the government. It is an important concept in international trade and finance, with implications for a country's competitiveness and economic stability.
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