Currency Depreciation:
Currency Depreciation refers to decrease in the value of domestic currency in terms of foreign currency. It makes the domestic currency less valuable and more of it is required to buy the foreign currency.
For example:
(i) Rupee is said to be depreciating if price of $1 rises from Rs 45 to Rs 50.
(ii) A change from $3 = £1 to $2= £1 represents that UK pound is appreciating.
Effect of Depreciation of Domestic Currency on Export
Depreciation of domestic currency means a fall in the price of domestic currency (say, rupee) in terms of a foreign currency (say, $). It means, with same amount of dollars, more goods can be purchased from India, i.e. exports to USA will increase as they will become relatively cheaper.
Currency Appreciation:
Currency Appreciation refers to increase in the value of domestic currency in terms of foreign currency. The domestic currency becomes more valuable and less of it is required to buy the foreign currency. For example:
(i) Indian rupee appreciates when price of $1 falls from Rs. 50 to Rs 45.
(ii) A change from $3 = £1 to $5 = £1 represents that the UK pound is appreciating.
Effect of Appreciation of Domestic Currency on Imports:
Appreciation of domestic currency means a rise in the price of domestic currency (say, rupee) in terms of a foreign currency (say, $). Now, one rupee can be exchanged for more $, i.e. with same amount of money, more goods can be purchased from USA. It leads to increase in imports from USA as American goods will become relatively cheaper.
