Currency Appreciation vs Currency Depreciation
Currency Appreciation and Currency Depreciation are two International Trade & Finance concepts in AP Economics that students often mix up. In short: currency appreciation is currency appreciation is an increase in the value of a currency relative to another in the foreign exchange market. Meanwhile, currency depreciation is currency depreciation is a decrease in the value of a currency relative to another in the foreign exchange market. Here is how they compare side by side.
Currency appreciation is an increase in the value of a currency relative to another in the foreign exchange market.
It results from rising demand for the currency or falling supply, often driven by higher interest rates or stronger growth. An appreciating currency makes exports more expensive and imports cheaper, reducing net exports. It is the opposite of depreciation.
Currency depreciation is a decrease in the value of a currency relative to another in the foreign exchange market.
It results from falling demand for the currency or rising supply, often driven by lower interest rates or weaker growth. A depreciating currency makes exports cheaper and imports more expensive, raising net exports. It is the opposite of appreciation.