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WAEC Economics 1991 (August) Question 11

Question 11

Balance of Payments and Exchange Rates

Devaluation means

  1. A.a reduction in the value of the national currency
  2. B.a reduction in the purchasing power of foreign currencies
  3. C.a reduction in the value of domestic currency relative to foreign currencies
  4. D.an increase in the value of the national currency
  5. E.a decrease in the purchasing power of foreign currencies.
Show the answer and explanation

Answer: C (a reduction in the value of domestic currency relative to foreign currencies)

Explanation

Devaluation is an official cut in the exchange value of a country's currency against foreign currencies.