CH 42 Impact of changing exchange rates

Question 1

What is appreciation?

Answer 1

Where the value of currency rises owing to market forces- the exchange rate increases as a result

Question 2

What is depreciation?

Answer 2

Where the value of a currency falls owing to market forces - The exchange rate decreases as a result

Question 3

What is the impact of the exchange rate appreciating?

Answer 3

-Demands for exports fall
-Demand for imports increase
-Current account worsens

Question 4

What is the impact of the exchange rate depreciating?

Answer 4

-Demand for exports increase
-Demand for imports fall
-Current account improves