Explain by giving examples, the distinction between depreciation and devaluation of domestic currency.
CBSE FOREIGN - SET 3 2017
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Depreciation of domestic currency refers to fall in the value of domestic currency in terms of foreign currency caused by rise in foreign exchange rate in
the foreign exchange market.
Devaluation refers to fall in the value of domestic currency due to deliberate increase in foreign exchange rate by the government which follows fixed exchange rate system.
Example: Suppose market rate of one US dollar rises from Rs 60 to Rs 65,the domestic buyers will now have to pay more for imports.It means one rupee can now buy less imports than before depreciation or devaluation.
the foreign exchange market.
Devaluation refers to fall in the value of domestic currency due to deliberate increase in foreign exchange rate by the government which follows fixed exchange rate system.
Example: Suppose market rate of one US dollar rises from Rs 60 to Rs 65,the domestic buyers will now have to pay more for imports.It means one rupee can now buy less imports than before depreciation or devaluation.
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