Appreciation and Depreciation
Appreciation and depreciation refer to changes in the value of assets or currencies over time. Appreciation occurs when the value of an asset or currency increases, while depreciation occurs when the value decreases. These terms are commonly used in economics to describe the fluctuation of prices and exchange rates in financial markets.
3 Key excerpts on "Appreciation and Depreciation"
eBook - ePubCountry Analysis
Understanding Economic and Political Performance
- David M. Currie(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...It all depends on how the exchange rate is quoted. All you have to do is make up a few examples using various prices, try exchange rates quoted in both directions, and practice them a few hundred times. Pretty soon it will become second nature. That’s the advantage that many foreigners have over us Americans – they exchange currencies constantly, most of us do it only occasionally. Appreciation and Depreciation Now let’s examine the other currency exchange: when we receive 1,000,000 euros from the Treasury of France in three months, we must sell those euros for dollars (another way of saying the same thing is that we must use the euros we receive to buy dollars). The difficulty is that we don’t know now what will be the value of the euro in three months. Currencies constantly change value as factors in the currency markets fluctuate. Political situations, economic indicators, balance of payments, and market psychology are never constant, and exchange rates reflect the fluctuation. We are exposed to currency risk or exchange risk : the risk that one currency will exchange for a different amount of another currency. When a currency increases in value, the currency is said to appreciate. Appreciation means the currency is worth more of another currency. If you own it, you can sell it for more of another currency. If you don’t own it and need to buy it, you’ll have to pay more for it than before it appreciated. It’s just the opposite with depreciation, which means that the currency is worth less of another currency. If you own it, you can’t sell it for as much of another currency. If you don’t own it, you can buy it at a lower price than previously...
eBook - ePub- James P. Neelankavil, Anoop Rai(Authors)
- 2014(Publication Date)
- Routledge(Publisher)
...The most common periods for forward currencies are 30-, 60-, and 90-day deliveries. A PPRECIATION AND D EPRECIATION OF C URRENCIES In all competitive markets, prices play an important role in equating supply and demand for any product. If prices increase, demand for the commodity declines and supply of the commodity increases, resulting in a new equilibrium price. In the short run, price changes can cause disruptions in the production of output and services, while in the long run, demand and production will adjust to the new price levels. To understand the effects of price increases and price decreases of foreign currencies, it is first necessary to formally define currency Appreciation and Depreciation. If the price of the euro increases, that is, moves from US$1.20 / € to US$1.25 / € to US$1.30 / €, the dollar is said to be depreciating, or, conversely, the euro is said to be appreciating. If the price of the euro decreases, that is, moves from US$1.20 / € to US$1.15 / € to US$1.10 / €, the dollar is said to be appreciating, or, conversely, the euro is said to be depreciating. One way to remember the difference is based on whether the buyer has to pay more or less for a currency. Paying more implies hardship and therefore can be associated with a depreciation of the currency. If an American pays less for a foreign currency, one can consider that as good news and recognize that the dollar has appreciated. A depreciating dollar is a boon to an American exporter, because it reduces the effective price to the foreign buyer of American commodities. To illustrate: Assume the current or spot price of the euro is US$1.20 / €. Assume the price of a candy bar in the United States is US$1.20. Assume the price of a candy bar in Germany is €1. Assume now the dollar depreciates drastically (for illustration purposes) to US$2.40 / €. A German can now purchase two candy bars from the United States for €1. Thus, whenever the dollar depreciates, U.S...
eBook - ePubThe Economics of Inflation
A Study of Currency Depreciation in Post-War Germany, 1914-1923
- Constantino Bresciani-Turroni, Millicent E. Sayers(Authors)
- 2013(Publication Date)
- Routledge(Publisher)
...The relations between the National Budget, paper inflation, exchange rates, wages, prices, and employment conditions were not the same in the various phases. Also the divergences between the internal and external values of the currency were different according to the phase of the depreciation, as will appear in the following discussion. II. The Various Measures of the Depreciation of a Paper Currency 2. In an investigation into the fluctuations of the value of the mark (or of any other paper currency) it is necessary to distinguish clearly the three following ideas: (a) the depreciation of the purchasing power of the paper mark in terms of goods in the home market. Assuming 100 as the level of German prices, say, in July 1914, and p 1,p 2,p 3, ••• the successive levels of prices in paper marks, the successive depreciations of the purchasing power are measured by the ratios: (b) the discount of the paper mark against the gold mark: In practice it was usual to measure this fall on the basis of the quotations of the Bourse of the paper mark expressed in dollars. The dollar was considered as representing gold. Assuming C 1, C 2, etc., as the exchange rate for the paper mark expressed in dollars, and o·2382 being the mint par of the gold mark in dollars, the discount is measured by the ratios: (c) the depreciation of the purchasing power of the paper mark in terms of foreign goods. If 100 is the level of prices in the world market in July 1914, and P 1, P 2 ••• the price indices in gold at successive dates, the depreciation of the purchasing power of the paper mark is measured thus: 3. According to the Purchasing Power Parity doctrine, if gold prices in the world market are assumed to remain unaltered, the discount of the paper mark against gold is equal to the depreciation of its purchasing power in the home market...
