(Q1); Difference between currency devaluation and depreciation.
Depreciation
Depreciation/appreciation refers to the change in price of a currency primarily as a result of changes in demand and supply under a floating exchange rate environment.
Depreciation happens in countries with a floating exchange rate. A floating exchange rate means that the global investment market determines the value of a country's currency.
The exchange rate among various currencies changes every day as investors reevaluate new information
Depreciation occurs when a country's exchange rate goes down in the market. The country's money has less purchasing power in other countries because of the depreciation.
Devaluation
Devaluation happens in countries with a fixed exchange rate. In a fixed-rate economy, the government decides what its currency should be worth compared with that of other countries.
The government pledges to buy and sell as much of its currency as needed to keep its exchange rate the same.
The exchange rate can change only when the government decides to change it. If a government decides to make its currency less valuable, the change is called devaluation. Fixed exchange rates were popular before the Great Depression but have largely been abandoned for the more flexible floating rates. China was the last major economy to openly use a fixed exchange rate. It switched to a floating system in 2005.
Depreciation
Depreciation/appreciation refers to the change in price of a currency primarily as a result of changes in demand and supply under a floating exchange rate environment.
Depreciation happens in countries with a floating exchange rate. A floating exchange rate means that the global investment market determines the value of a country's currency.
The exchange rate among various currencies changes every day as investors reevaluate new information
Depreciation occurs when a country's exchange rate goes down in the market. The country's money has less purchasing power in other countries because of the depreciation.
Devaluation
Devaluation happens in countries with a fixed exchange rate. In a fixed-rate economy, the government decides what its currency should be worth compared with that of other countries.
The government pledges to buy and sell as much of its currency as needed to keep its exchange rate the same.
The exchange rate can change only when the government decides to change it. If a government decides to make its currency less valuable, the change is called devaluation. Fixed exchange rates were popular before the Great Depression but have largely been abandoned for the more flexible floating rates. China was the last major economy to openly use a fixed exchange rate. It switched to a floating system in 2005.
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