Question

58. Consider the following statements:
1. Devaluation and Depreciation refer to reduction in the value of
domestic currency.
2. Both are performed by the Government or Central Bank.
Which of the above statements are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2​

Answer 1

Right Option = d) Neither 1 nor 2

Explanation:

• Devaluation and depreciation refer to the reduction in the value of domestic currency in comparison to the foreign currency.

• Here we can say that the value of a domestic currency can only be measured in the comparison of some foreign currency, Thus , option (A) is not correct.

• Depreciation and devaluation both are not performed by the central bank or government.

• Devaluation of a currency can be done by the central bank or government, but Depreciation of a currency happens due to to various reasons, like - Economic policies and interest rates.

Thus, we can say that neither option 1) is correct no option 2) is correct.