The main reason(s)why governments sometimes chose to devalue their currencies is (are)
A)devaluation makes domestic goods more expensive in relation to foreign goods.
B)devaluation makes domestic services more expensive in relation to foreign services.
C)devaluation increases foreign reserves held by the central bank.
D)devaluation improves the current account and increases foreign reserves held by the central bank.
E)devaluation hurts foreign currencies.

Question

Quizplus · Accepted Answer

Devaluation of a currency can improve the current account by making it cheaper for foreign countries to buy exports and more expensive for domestic consumers to buy imports. This can help boost a country's trade balance, which can lead to an increase in foreign reserves held by the central bank. Therefore, D is the best choice. Options A and B state that devaluation makes domestic goods and services more expensive, which is the opposite of what happens. Option C is partially correct, but it is not the main reason why governments devalue their currencies. Option E is not a valid reason for governments to devalue their currencies.

The Main Reason(s)why Governments Sometimes Chose to Devalue Their Currencies