Which one of the following statements is the MOST accurate?
A) A devaluation occurs when the central bank lowers the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank raises E.
B) A devaluation occurs when the central bank raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank lowers E.
C) Devaluation occurs when the domestic currency price of foreign currency, E, raises and a revaluation occurs when E is lowered.
D) A devaluation occurs when the central bank of the foreign country raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank of the foreign country lowers E.
E) A devaluation occurs when the central bank raises the foreign currency price of domestic currency, E, and a revaluation occurs when the central bank lowers E.

Question

Quizplus · Accepted Answer

A devaluation occurs when the domestic currency price of foreign currency, E, decreases, making exports cheaper and increasing demand for domestic products in foreign markets. The opposite, a decrease in the domestic currency price of foreign currency, is called a revaluation. Therefore, option B is the most accurate statement as it correctly explains the meaning of devaluation and revaluation.

Which One of the Following Statements Is the MOST Accurate