Question

Explain the meaning of devaluation and appreciation of currency in the Foreign Exchange market.

Hint:

Devaluation is a policy measure, while appreciation is driven by market dynamics in a floating exchange rate system.

Answer 1

• Devaluation: A deliberate downward adjustment of a country's currency value relative to another currency, usually by the government, to boost exports by making them cheaper and reduce imports by making them costlier.
• Appreciation: An increase in the value of a country's currency relative to another currency, often determined by market forces. It makes imports cheaper and exports costlier.