What is the situation called in the foreign exchange market when the value of the domestic currency starts falling in comparison to the foreign currency?

The correct answer is devaluation.

In News

• The value of the domestic currency has been falling in comparison to foreign currencies due to various economic factors.

Key Points

• Devaluation refers to the deliberate downward adjustment of a country's currency value relative to another currency, group of currencies, or standard.
• It is a monetary policy tool used by countries that have a fixed or semi-fixed exchange rate regime.
• Devaluation can make a country's exports more competitive in the global market, but it also makes imports more expensive.
• Example: A country might devalue its currency to boost export-driven growth.

Additional Information

• Cost Overrun
  • Occurs when the actual cost of a project exceeds the original budget.
  • It is not related to currency value changes.
• Revaluation
  • Refers to the upward adjustment of a country's currency value relative to another currency, group of currencies, or standard.
  • Opposite of devaluation.
• Liquidation
  • The process of bringing a business to an end and distributing its assets to claimants.
  • Not directly related to currency value changes.