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Currency Appreciation and Depreciation Essay

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Below is an essay on "Currency Appreciation and Depreciation" from Anti Essays, your source for research papers, essays, and term paper examples.

Currency depreciation is the loss of value of a country's currency   with respect to one or more foreign reference currencies, typically in a floating exchange rate system. It is most often used for the unofficial increase of the exchange rate due to market forces, though sometimes it appears interchangeably with devaluation. Its opposite, an increase of value of a currency, is currency appreciation.

The depreciation of a country's currency refers to a decrease in the value of that country's currency. For instance, if the Canadian dollar depreciates relative to the euro, the exchange rate (the Canadian dollar price of euros) rises - it takes more Canadian dollars to purchase 1 euro (1 EUR=1.5CAD → 1 EUR=1.7CAD). When the Canadian dollar depreciates relative to the Euro, the Canadian dollar becomes more competitive because the price of Canadian goods when exchanged to Euro will be cheaper leading to a larger Canadian export. On the other hand, European countries that denominates its goods and services in Euros will have lost competitiveness to the Canadian dollar. The price of European products denominated in Euros will thus become more expensive in Canada.

The appreciation of a country's currency refers to an increase in the value of that country's currency. Continuing with the CAD/EUR example, if the Canadian dollar appreciates relative to the euro, the exchange rate falls - it takes fewer Canadian dollars to purchase 1 euro (1 EUR=1.5CAD → 1 EUR=1.4CAD). When the Canadian dollar appreciates relative to the Euro, the Canadian dollar becomes less competitive. This will lead to larger imports of European goods and services, and lower exports of Canadian goods and services.
[edit] How currency appreciates

Any currency appreciates whenever its demand increases i.e. its value in the world market increases. The increase in demand can occur in these 3 ways: 1.When a country’s exports are high, its currency’s demand increases for transactional purposes....

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MLA Citation

"Currency Appreciation and Depreciation". Anti Essays. 14 Dec. 2018

<http://snehaedu.com/free-essays/Currency-Appreciation-And-Depreciation-357525.html>

APA Citation

Currency Appreciation and Depreciation. Anti Essays. Retrieved December 14, 2018, from the World Wide Web: http://snehaedu.com/free-essays/Currency-Appreciation-And-Depreciation-357525.html