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appreciationisanincreaseinthevalueofa

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Unformatted text preview: e euro. It now takes $1.20 to buy one euro, so that the dollar is less valuable. – The euro has appreciated relative to the dollar: it is now more valuable. Depreciation and Appreciation (cont.) (cont.) Appreciation is an increase in the value of a currency relative to another currency. – An appreciated currency is more valuable (more expensive) and therefore can be exchanged for (can buy) a larger amount of foreign currency. – $1/€1 → $0.90/€1 means that the dollar has appreciated relative to the euro. It now takes only $0.90 to buy one euro, so that the dollar is more valuable. – The euro has depreciated relative to the dollar: it is now less valuable. Depreciation and Appreciation (cont.) (cont.) A depreciated currency is less valuable, and therefore it can buy fewer foreign produced goods that are denominated in foreign currency. – – – How much does a Honda cost? ¥3,000,000 ¥3,000,000 x $0.0098/¥1 = $29,400 ¥3,000,000 x $0.0100/¥1 = $30,000 A depreciated currency means that imports are more expensive and domestically produced goods and exports are less expensive. A depreciated currency lowers the price of exports relative to the price of imports. Depreciation and Appreciation (cont.) (cont.) An appreciated currency is more valuable, and therefore it can buy more foreign produced goods that are denominated in foreign currency. – – – How much does a Honda cost? ¥3,000,000 ¥3,000,000 x $0.0098/¥1 = $29,400 ¥3,000,000 x $0.0090/...
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