Under a system of fixed exchange rates, the purpose of currency devaluation is to cause the exchange value of a currency to ______, thus counteracting a balance-of-payments ______.
A) depreciate, deficit
B) depreciate, surplus
C) appreciate, deficit
D) appreciate, surplus

Question

Quizplus · Accepted Answer

Currency devaluation under a fixed exchange rate system is aimed at causing the currency to depreciate in order to counteract a balance-of-payments deficit. This makes exports cheaper and imports more expensive, potentially improving the balance-of-payments situation.

Under a System of Fixed Exchange Rates, the Purpose of Currency