Devaluation reduces the export price in term of foreign currencies in the world market.

As a result the exports are increased so as to increase the revenue of the country. When the exports are increased all efforts are made to increase the production of the country. Increased demand for manufactured goods in the international market enhances incentives to the expansion of industries. Due to devaluation the price of imported goods in term of foreign currency goes up. So the prices of the commodities are increased because of increase in the price of imported machinery and raw material. The imports are reduced. When the revenues are increased due to an increase in exports and payments are reduced due to decrease in imports. As a result, the balance of payment of the country is corrected. Foreigners find it cheaper to invest in devaluating country so it tends to increase the investment of foreign capital. Because of devaluation, we have to pay more rupees in exchange of dollars. So in this way debt is increased. Devaluation makes currency smuggling unprofitable. It also discourages smuggling of other goods.

1. Effect on exports: devaluation reduces the export price in term of foreign currencies . In the world of market, as a result, the exports are increased. So increase in the revenues of the country. 2. Effect on Foreign exchange: When there is greater devaluation, the speculators are sure that in future, the currency will not be devalued they will purchase the currency. In this way, there is flow of foreign exchange from foreign to home country. 3. Effect on resources: increase in exports will lead to the full utilization of human and natural resources of the country. 4. Effect on production level: when the exports are increased, all efforts are made to increase the production of the country. 5. Effect on industry: Increased demand for manufactured goods in the international Market enhances more incentives for the expansion of the industries. 6. Effect on imports: Due to devaluation, the prices of imported goods in term of Foreign currency goes up. So the prices of the commodities are increased because of increase in prices of imported machinery and raw material. The imports are reduced. 7. Correction of balance of payment: When the revenues are increased due to Increase in exports and payments are reduced due to decrease in imports. As A result, the balance of payment of the country is corrected.

Correction of Deficit: Devaluation makes home goods cheaper to foreign countries and foreign goods expensive to home country. In this way deficit in the balance of payment is corrected. Adjustment of Currency Value: When the currency is over valued, devaluation brings equilibrium in the external and internal value of the currency, so various imbalances in the country removes.

Increase in Foreign Aid: The international lending agencies like IMF, IBRD insists upon devaluation, as in the Butto reign IMF stressed the Govt. of Pakistan to devalue the currency. Foreign investor also feels pleasure to do the investment in those countries where currency is devalued. End of Uncertainty: Devaluation removes the uncertainty in the business circles. Rate of investment also increases. Inflow of Remittances: The workers who are working abroad, they would prefer to send capital in side the country. Because they will get more currency in terms of foreign currency

Effects of Devaluation A significant danger is that by increasing the price of imports and stimulating greater demand for domestic products, devaluation can aggravate inflation. If this happens, the government may have to raise interest rates to control inflation, but at the cost of slower economic growth. Another risk of devaluation is psychological. To the extent that devaluation is viewed as a sign of economic weakness, the creditworthiness of the nation may be jeopardized. Thus, devaluation may dampen investor confidence in the country's economy and hurt the country's ability to secure foreign investment. Another possible consequence is a round of successive devaluations. For instance, trading partners may become concerned that a devaluation might negatively affect their own export industries. Neighboring countries might devalue their own currencies to offset the effects of their trading partner's devaluation. Such "beggar thy neighbor" policies tend to exacerbate economic difficulties by creating instability in broader financial markets. Since the 1930s, various international organizations such as the International Monetary Fund (IMF) have been established to help nations coordinate their trade and foreign exchange policies and thereby avoid successive rounds of devaluation and retaliation. The 1976 revision of Article IV of the IMF charter encourages policymakers to avoid "manipulating exchange rates...to gain an unfair competitive advantage over other members." With this revision, the IMF also set forth each member nation's right to freely choose an exchange rate system.