Devaluation increases the cost of foreign goods, while it decreases the cost of domestic goods to foreign firms.

Question

Quizplus · Accepted Answer

Devaluation of currency reduces its value in comparison to other currencies. This makes imports expensive for the domestic market as more currency is required to buy them. However, it also means that foreign firms can buy domestic goods at a relatively lower price, increasing exports. Therefore, devaluation tends to increase the cost of foreign goods and decrease the cost of domestic goods for foreign firms.

Devaluation Increases the Cost of Foreign Goods, While It Decreases