Devaluation of a Currency: Effects
Devaluation of a Currency: Effects
In the foreign exchange market when exchange rate of a domestic currency is cut down by its government against any foreign currency, it is called devaluation. It means official depreciation is devaluation.
Effects
- Exports Cheaper: A devaluation of the exchange rate will make exports more competitive and appear cheaper to foreigners. This will increase demand for exports.
- Imports More Expensive: A devaluation means imports, such as petrol, food and raw materials will become more expensive. This will reduce the demand for imports.
- Increased Aggregate Demand (AD): Devaluation could cause higher economic growth. Therefore higher ....
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