currency appreciation vs depreciation although, currency, domestic, problems, foreign

joehogue

Hi,

although I read the currency stuff several times now, I am still confused with the effects of curreny appreciation and depreciation. I just can`t remind when I loose money.

If currency rates are quoted, I can calculate the effects. However, in some exams questions appeared where my home or the foreign currency depreciated or appreciated and I have problems to remind the effect on my domestic currency reurn (gain or loss).

Is there any good rule of thumb, where I can remind me this stuff for tomorrow?

Thank you very much in advance

Greg

mp3bu

You have an exchange rate quoted as X/Y...

All you need to do is look at what's at the bottom, in this case Y.

If X/Y goes up then Y appreciated..
If X/Y goes down then Y depreciated..

aidebaobao

Isn't it the opposite?

If it costs $1.50 to buy 1 GBP, therefore $1.50/1GBP, and then the exchange rate changes such that now it costs $1.00 to buy 1GBP or $1.00/1GBP (or alternatively, $1.50 / 1.50GBP), effectively the "Y" has gone up, but "Y" has depreciated because it's cheaper to buy now.

Or did I misunderstand your explanation?

Windjam

In your example, the $ has appreciated and hence the GBP has depreciated.

The exchange rate went from a high to a low number which means that whatever was in the denominator has depreciated. i.e. GBP.

Which ties up to my illustration...

Darien

I always look at it this way:

Think of 1.33Euro/$ as 1.33 Euro to 1 Dollar.

If the spot rate goes to 1.35/$ than it takes more Euro to buy one dollar hence the Euro has depreciated against the dollar.

If the spot rate goes to 1.3/$ than it now takes less Euro to buy one dollar hence the Euro has appreciated versus the dollar.