With refrence to ldquo currency war rdquo sometimes seen in the news consider the following statemen...........

Economic Affairs Foreign Trade - Trends and Policy

With refrence to “currency war” sometimes seen in the news, consider the following statements:

1.When countries impose tit-for-tat import tariffs on imported goods to gain competitive advantage for domestic manufacturers.

2.Currency war is triggered when nations either allow their currencies to weaken and devalue them to gain a competitive advantage over trade rivals.

Which of the statements given above is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

2 only

Statement 1 is incorrect. The definition provided in statement 1 refers to a trade war, not a currency war. A trade war involves the imposition of import tariffs to protect domestic industries, while a currency war specifically involves devaluing currencies to gain a competitive advantage in international trade.

Statement 2 is correct. A currency war occurs when countries deliberately devalue their currencies to make their exports cheaper and more competitive in global markets.

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