Which one of the following statements is the most accurate?
A) A devaluation occurs when the central bank lowers the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank raises E.
B) A devaluation occurs when the central bank raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank lowers E.
C) Devaluation occurs when the domestic currency price of foreign currency, E, raises and a revaluation occurs when E is lowered.
D) A devaluation occurs when the central bank of the foreign country raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank of the foreign country lowers E.
E) A devaluation occurs when the central bank raises the foreign currency price of domestic currency, E, and a revaluation occurs when the central bank lowers E.

Question

Quizplus · Accepted Answer

A devaluation occurs when the domestic currency price of foreign currency, E, becomes weaker, meaning that it takes more units of domestic currency to purchase one unit of foreign currency. This can be achieved by the central bank raising the domestic currency price of foreign currency, E. On the other hand, a revaluation occurs when the domestic currency price of foreign currency, E, becomes stronger, meaning that it takes fewer units of domestic currency to purchase one unit of foreign currency. This can be achieved by the central bank lowering the domestic currency price of foreign currency, E. Therefore, statement B is the most accurate.

Which One of the Following Statements Is the Most Accurate