💸 Unit 1: Basic Economic Concepts
1.2Opportunity Cost and the Production Possibilities Curve (PPC)
1.3Comparative Advantage and Trade
📈 Unit 2: Economic Indicators and the Business Cycle
2.1Circular Flow and GDP
2.6Real vs Nominal GDP
💲 Unit 3: National Income and Price Determination
3.5Equilibrium in Aggregate Demand-Aggregate Supply (AD-AS) Model
💰 Unit 4: Financial Sector
4.3Definition, Measurement, and Functions of Money
4.4Banking and the Expansion of the Money Supply
⚖️ Unit 5: Long-Run Consequences of Stabilization Policies
5.1Fiscal and Monetary Policy Actions in the Short-Run
5.3Money Growth and Inflation
5.4Deficits and the National Debt
🏗 Unit 6: Open Economy-International Trade and Finance
6.1Balance of Payments Accounts
6.4Effect of Changes in Policies & Economic Conditions on the Foreign Exchange Market
⏱️ 2 min read
November 15, 2020
Exchange rates are the price at which one international currency can be exchanged for another. In other words, it's the price at which one currency can be bought with another.
Appreciation occurs when the value of a country's currency increases relative to a foreign currency. Depreciation occurs when the value of a country's currency falls.
Let's look at various currencies and their exchange rates to the U.S. Dollar and whether they have appreciated or depreciated:
Cost of One U.S. Dollar
If we look at the British Pound, we see that the exchange rate increases from .75 to .80 from March to July. This means that the British Pound has become more expensive or has appreciated in value.
If we look at the European Euro, we see that the exchange rate decreases from 1.10 to 1.05 from March to July. This means that the European Euro has become less expensive, or has depreciated in value.
We can also use the information above to calculate the price of a U.S. good in the various currencies. We do this by simply multiplying the price of the U.S. good by the exchange rate for whichever country we are looking at. So for example, a $300 hotel room in the U.S. would cost 💷225 pounds in Britain.
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