Differentiate between revaluation and overvaluation of a currency

Differentiate between revaluation and overvaluation of a currency

Answer

Revaluation of a currency occurs when the value of a currency is increased relative to another currency in a fixed exchange rate regime whereas overvaluation of a currency is that currency whose exchange rate is fixed above the fixed market rate (equilibrium rate)

An overvalued exchange rate means that the countries exports will be relatively expensive and imports cheaper. An overvalued exchange rate tends to depress domestic demand and encourage spending on imports.

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