Critical reasoning: The exchange rate is the official rate of exchange of Taka for other currencies. It determines the value of Bangladeshi goods in relation to foreign goods. If the Taka is devalued in terms of other currencies, Bangladeshi exports (which are paid for in Taka) become cheaper to foreigners and Bangladeshi imports become more expensive to holders of Taka. What conclusions can be drawn from the information above?

A The difference between imports and exports is called the trade gap.

B There are certain disadvantages for the economy of Bangladesh attached to devaluation

C The prospect of devaluation results in a speculative outflow of funds

D By encouraging export and discouraging imports, devaluation can improve balance of payments of Bangladesh

Solution

Correct Answer: Option C

Solution

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