Consider the following statements in regards to devaluation and depreciation of a currency: Devaluation is an activity conducted by the Central government whereas depreciation happens due to market forces. In both the devaluation and depreciation, the currency loses value against other currencies in a floating currency exchange market. Which of the statements given above is/are correct ? Options: A . &nbsp1 and 2 both B . &nbsp2 only C . &nbsp1 only D . &nbspNone

Consider the following statements in regards to devaluation and depreciation of

Question

Consider the following statements in regards to devaluation and depreciation of a currency:

Devaluation is an activity conducted by the Central government whereas depreciation happens due to market forces.

In both the devaluation and depreciation, the currency loses value against other currencies in a floating currency exchange market.

Which of the statements given above is/are correct?

Options:

A . 1 and 2 both

B . 2 only

C . 1 only

D . None

Answer: Option C
Answer: (c)
Devaluation happens in countries with a fixed exchange rate. In a fixed-rate economy, the government decides what its currency should be worth compared with that of other countries. The exchange rate can change only when the government decides to change it.
If a government decides to make its currency less valuable, the change is called devaluation. Depreciation happens in countries with a floating exchange rate. A floating exchange rate means that the global investment market determines the value of a country’s currency.

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