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Sunday, November 6, 2011

DEPRECIATION v/s DEVALUATION




Currency depreciation is an economic result, whereas devaluing a currency is an act that results in currency depreciation. 
*Depreciation of Currency
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When a currency depreciates, this means that the currency has decreased in value when compared to another nation's currency.
e.g. If you were able to get £1 for every $2 on one day, then the next day you can get £1.5 for every $2, the value of the £ has decreased. This decrease is known as depreciation. 

Devaluation of Currency: is an active economic strategy...used when countries are badly in debt...occurs when a country lowers the official value of its currency in relation to foreign currencies. This is intended to raise the price of imported goods and increase the value of the country's exported goods. This can be a risky economic move because it can spark hyperinflation.

In other words currency depreciation is controlled by the international currency rates based on the international stock market indicators; and currency devaluation is controlled by the central banks (RBI in India's case) which forces exchange rates, that subsequently devalues the currency...


A full length description about this topic is already posted in the blog with Russian Example please see it too in older posts....

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