CBSE Class 12-commerce Answered

Devaluation is the decrease in the value of domestic currency corresponding to foreign currency as planned by the Central bank, in a case, when exchange rate is not determined by the demand and supply forces but is fixed by the government of varied nations.

Depreciation is the decrease in the value of domestic currency corresponding to foreign currency, in a case, when exchange rate is determined by the forces of supply and demand in the international money market. Both depreciation and devaluation will result in the value of domestic currency in terms of foreign currency. However, the devaluation causes desired fall in the value of rupee which in turn boost the exports. The depreciation causes undesired fall in the value of rupee where the import bill of the government may become too high leading to a rise in fiscal deficit to unmanageable limits.