(a) What is (i) devaluation: (ii) depreciation of currency? [4 marks each]
(b) Outline three measures that can be adopted to correct balance of payments deficit [12 marks]
Explanation
(a)(i) Devaluation is the official reduction of the exchange value of a national currency In terms of the currencies of other countries.
(ii) Deprecation of currency is the reduction of the exchange value of a national currency in relation to other currencies as a result of changes in demand and supply in the foreign exchange market.
(b)(i)Adoption of foreign exchange control measures.
(ii) Devaluation
(iii) Borrowing from foreign governments and International institutions.
(iv) Export promotion.
(v) Import substitution
(vi) Increased tariffs on imports
(vii) Embargoes.
(viii) Quotas.
(ix) Deflationary measures e.g. decreasing government