Pls explain... The reasons for depriciation of currency. 4marks question
Dear student,
When value of a domestic currency falls i.e., more units of domestic currency are paid to obtain a unit of foreign currency, it is known as 'depreciation of domestic currency'. Such a fall in the value of domestic currency happens in the free exchange market, when there is larger demand for foreign currency.
Following are the reasons of depreciation of currency:-
1) Economic conditions- When a country imports more than it exports, it faces trade deficit and the value of its currency falls.
2) Global market conditions- The overall global economic condition impacts currencies in different regions as well. For instance, if the United States is facing a recession, the value of the U.S. dollar tends to depreciate against currencies in more stable economies.
3) Monetary policy- The central banks are responsible for establishing monetary policies in a country that causes changes in currency value of its country.
Regards
When value of a domestic currency falls i.e., more units of domestic currency are paid to obtain a unit of foreign currency, it is known as 'depreciation of domestic currency'. Such a fall in the value of domestic currency happens in the free exchange market, when there is larger demand for foreign currency.
Following are the reasons of depreciation of currency:-
1) Economic conditions- When a country imports more than it exports, it faces trade deficit and the value of its currency falls.
2) Global market conditions- The overall global economic condition impacts currencies in different regions as well. For instance, if the United States is facing a recession, the value of the U.S. dollar tends to depreciate against currencies in more stable economies.
3) Monetary policy- The central banks are responsible for establishing monetary policies in a country that causes changes in currency value of its country.
Regards