Understanding Currency Devaluation
The question asks for the term describing a decrease in the external value of a country's currency relative to other currencies.
Analyzing the Options
Let's examine the given options:
- Option 1: Devaluation of currency: This term specifically refers to a deliberate downward adjustment of a country's currency value in terms of other currencies, typically set by a government or central bank. This matches the question's description of a reduction in external value.
- Option 2: Increase in purchasing power: This signifies that the currency can buy more goods or services, indicating an increase in its value, the opposite of what the question describes.
- Option 3: Economic growth: This refers to the increase in the production of goods and services in an economy. While related to currency strength, it's not the direct term for a reduction in external currency value.
- Option 4: Decrease in inflation: Lower inflation generally leads to an increase or stability in a currency's value, not a reduction in its external worth.
Conclusion on Currency Value
The most accurate term for the reduction in the external value of the domestic currency is Devaluation of currency.
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Important Questions from External Sector and Currency Exchange rate
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