From the following statements choose the effects of devaluation of domestic currency.
(A) Exchange rate is fixed.
(B) Indian Government increases the exchange rate.
(C) Domestic currency become cheaper.
(D) The Exports of India will rise.
Choose the correct answer from the options given below:
From the following statements choose the effects of devaluation of domestic currency.
(A) Exchange rate is fixed.
(B) Indian Government increases the exchange rate.
(C) Domestic currency become cheaper.
(D) The Exports of India will rise.
Choose the correct answer from the options given below:
Solution
Option 2: (A), (B), (C), (D) -> Devaluation is a deliberate reduction in the value of a country's currency relative to foreign currencies under a fixed exchange rate system (A). The government increases the exchange rate, meaning more domestic currency is needed to buy foreign currency (B). This makes the domestic currency cheaper in international markets (C). As a result, domestic goods become more affordable for foreign buyers, leading to increased exports (D). All four statements correctly describe the effects and characteristics of currency devaluation. -> correct
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