Forex Trading Tips| Evaluation/Devaluation

We have another great article from our forex trading tips goodybag. What we are going to discuss with this blog post, is the difference between revaluation and devaluation. Devaluation refers to the purposeful decline in value of a currency in relation to other currencies as charged by a government entity. Seems pretty easy right? Well we provide forex trading tips!

We will go into a little more depth for you An example of devaluation is so: If the U. S. dollar is worth ten units of a foreign currency that is then devalued by ten percent, the U. S. dollar is now equivalent to only nine units of the foreign currency. This makes any items purchased in the foreign currency more expensive for those trading in U. S. dollars, as the exchange rate is lowered. It also makes items in the foreign country less expensive to trade in U. S. dollars.

An opposite change in value can also occur, raising the value of the foreign currency. This is referred to as revaluation. Another one of out forex trading tips when thinking about revaluation and devaluation: While it may seem that purposely adjusting the value of a nation’s currency is “cheating”, or taking an unfair advantage by making foreign products cheaper to purchase and increasing the value of exports, there are regulations in place to prevent the manipulation of exchange rates for such purposes. The charter of the IMF (International Monetary Fund) assists in prohibiting such occurrences and enforcing the policy.

There are ways in which you can take advantage of devaluation and revaluation, which will be discussed later on. However, what happens when the value of a foreign currency changes due to market fluctuation rather than purposeful reductions or increases by a federal government or federal bank? What effect do appreciation and depreciation have on the stock market? Stay tuned for more of our forex trading tips !

Leave a Reply


Menu