Multiple choice

If a country 'devalues' its currency, it would be having

  1. floating exchange rate system

  2. fixed exchange rate system

  3. exports would fall

  4. dirty float
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Devaluation involves officially reducing the value of a currency against a reference (usually gold or another currency like the US dollar). This can only occur under a fixed exchange rate system where the government sets the currency value. Under floating rates, market forces determine value, so 'devaluation' in the formal sense cannot occur - there's only depreciation. Devaluation is a policy tool available only to countries with fixed regimes.

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