Differentiate between devaluation and depreciation.
Devaluation | Depreciation |
Devaluation refers to the fall in the value of domestic currency in relation to a foreign currency as planned by the government. In devaluation it is government which reduces the value of domestic currency in terms of the foreign currency. | Depreciation is the fall in the value of domestic currency in relation to a foreign currency, it is the free play of the forces of demand and supply of foreign exchange in foreign exchange market the government has no role in it. |
Devaluation is a desired fall in the value of a rupee. | Depreciation may cause undesired fall. |
The objective of devaluation is to promote export and to curb import. | Depreciation may result in current account deficit and fiscal deficit. |
Would the central bank need to intervene in a managed floating system? Explain why.
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