Question

Differentiate between devaluation and depreciation.

Distinguish between the depreciation of currency and devaluation of a currency.

How is Devaluation of currency different from Depreciation of currency? Give any two differences.

Distinguish between devaluation and depreciation of a currency. Explain, with examples.

Mention one difference between devaluation and depreciation of currency.

Differentiate between depreciation and devaluation of currency.

Answer 1

Devaluation	Depreciation
It occurs when the currency exchange rate is officially lowered under a fixed exchange rate system.	When the value of a currency falls as compared to other currencies, it is known as depreciation.
It exists under a fixed exchange rate.	It exists under a flexible exchange rate.
It is due to government’s decision	It is due to the demand and supply forces.

Answer 2

Sr. No.	Basis	Depreciation	Devaluation
1.	Definition	Currency depreciation implies that domestic currency has become less expensive in terms of foreign currency.	Devaluation of a currency occurs when the currency exchange rate is officially lowered by the monetary authority.
2.	Exchange rate system	This is possible in a flexible exchange rate system	This is possible in a fixed exchange rate system
3.	Control	Intentional action by authorities.	Uncontrolled and market-determined.
4.	Example	India devalued the rupee in 1991 (1 USD = ₹ 17 to ₹ 25).	INR depreciates from ₹ 75 to ₹ 83 per USD due to trade deficit.