Business Studies – 6.2.4 Exchange rates | e-Consult

Exchange Rate Appreciation: This refers to an increase in the value of a currency relative to another currency. In simpler terms, it means that one currency can buy more of the other.

Example Factor: A country experiencing strong economic growth, leading to increased demand for its goods and services. This increased demand for the country's currency drives up its value. Higher interest rates can also attract foreign investment, increasing demand for the currency.

Exchange Rate Depreciation: This refers to a decrease in the value of a currency relative to another currency. It means that one currency can buy less of the other.

Example Factor: A country experiencing a recession, leading to decreased demand for its goods and services. This reduced demand for the country's currency drives down its value. High inflation can also lead to depreciation, as the purchasing power of the currency decreases.