Q. With reference to currency valuation in the foreign exchange market, consider the following statements:
1.Depreciation refers to a fall in the value of a domestic currency in a floating exchange rate system due to market forces.
2.Devaluation occurs when the government officially lowers the value of its currency under a fixed exchange rate system.
3.Revaluation is the process of increasing the value of a currency due to demand-supply dynamics in a floating exchange rate system.
Which of the statements given above is/are correct?
Answer: A
Notes:
Explanation:
- Depreciation happens when a domestic currency loses value due to market forces in a floating exchange rate system.
- Devaluation is an official reduction in the currency’s value by the government, usually in a fixed or managed exchange rate
- Revaluation is not market-driven; it is an official act by the government to increase the value of its currency under a fixed or managed exchange rate system — not in a floating regime.
Source: Indian Economy (Ramesh Singh)
