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Fundamental Analysis What is the definition of Devaluation?
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Question by: john - 11 Jun 2012, 09:09:52
What is the definition of Devaluation?
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Answers (1)
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Answer by: mike - 12 Jun 2012, 11:00:21

It is the deliberate downward adjustment to a country's official exchange rate relative to other currencies. In a fixed exchange rate regime, only the decision by a country's government (i.e central bank) can alter the official value of the currency. This is the opposite of "revaluation". There are two major effects of a currency devaluation. First, devaluation makes a country's exports relatively less expensive for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit.

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