Q. Devaluation of currency can correct a Balance of Payments deficit because___
Answer: It lowers price of exports in foreign currency and rises price of imports in home currency
Notes: Devaluation refers to fall in the fixed exchange rate between one currency and other. Devaluation is used to correct the balance of payment (BoP) deficit but only as a last resort as it has major repercussions on the domestic economy. Devaluation can correct a BoP deficit because it lowers the price of experts in terms foreign currencies and raise the price of imports on the home market
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