Q. With reference to currency value changes in the foreign exchange market, consider the following statements:
1.Depreciation of a currency occurs only under a floating exchange rate regime.
2.Devaluation refers to a market-driven fall in the value of a currency in the forex market.
Which of the statements given above is/are correct?
Answer: A
Notes:
Explanation:
- Depreciation occurs when the value of a domestic currency falls due to market forces like demand and supply, and this is possible only under a floating exchange rate system.
- Devaluation is not market-driven; it is an official reduction in the currency’s value by the government or central bank, typically under a fixed exchange rate
Source- TMH Indian Economy by Ramesh Singh
