Define each of the following terms: c. Trade deficit; devaluation; revaluation

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Define each of the following terms: c. Trade deficit; devaluation; revaluation

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Define each of the following terms:
c. Trade deficit; devaluation; revaluation

Explanation & AnswerSolution by a verified expert

Sample Response

Trade deficit: When the balance of trade of a country is in negative, it is called trade deficit. Balance of trade is the difference between total exports and imports of the country. Thus when imports are more than exports, it would be termed as a situation of trade deficit.
 
Devaluation: In a pegged exchange rate system, a country links its currency to another country. When the value of currency of the country falls in comparison to the value of other currency to which it is pegged, it is termed as “Devaluation of currency”. This fall is due to government interventions, policies and not due to changes in bilateral trade. Devaluation of currency indicates that less foreign currency can be purchased for the same units of home currency as compared to earlier scenarios.
 
Revaluation: In a pegged exchange rate system, a country links its currency to another country. When the value of currency of the country appreciates in comparison to the value of other currency to which it is pegged, it is termed as “Revaluation of currency”. That indicates that the country can purchase more units of foreign currency for the same value of home currency than earlier. This rise is due to government interventions, policies and not due to changes in bilateral trade.

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