appreciationisanincreaseinthevalueofa

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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/...
View Full Document

This note was uploaded on 10/31/2012 for the course ECON 441 taught by Professor Komatsuzaki during the Fall '06 term at Maryland.

Ask a homework question - tutors are online