Fermat Posted March 12, 2013 Report Share Posted March 12, 2013 Hey guys, so I was looking over some questions about currencies and what changes the exchange rates. And one of the questions was something like: If French travelers were to visit Germany, what would they want to happen to their currency?And then there were 4 option and I can't remember all of them but it was something like:Appreciation of the French currencyDepreciation of the French currencyDevaluation of the French currencyA stable French currencyI though it should be depreciation of currency because say for example that right now 1 French currency buys 10 German Currency, so if the French currency was to depreciate, then for example 0.5 of the French currency would buy 10 of the German currency. So basically you would have to pay less of the French currency to get the same amount of the German currency. However, the right answer of Appreciation of the French currency. So could anyone explain to me why that is the case?Also, if anyone here has to good grasp on the whole currency unit, please PM me because I have a lot of questions. Reply Link to post Share on other sites More sharing options...
Sandwich Posted March 12, 2013 Report Share Posted March 12, 2013 Given that the French and the Germans have the same currency, some might consider this a trick question.To my understanding, if something depreciates, it loses its value relative to other currencies. This doesn't mean literally a drop in the number of value, it means practically a drop in the value. For the theoretical french money to lose value relative to the german money (i.e. if it were to depreciate) then it doesn't mean 0.5 french coins to 10 german coins, as in your example. It means 2 french coins for 10 german coins. The value of the french money relative to the german money has decreased, and so you need MORE french money in order to acquire the same amount of german money.If the french money appreciated, THEN you would exchange 0.5 french coins for 10 german ones. Or alternatively, this might also happen if the german money depreciated and became less in french money. Does that make sense?Basically you have appreciation and depreciation misunderstood. Just think about it practically - if something loses its relative value and depreciates, is it suddenly going to have more buying power in terms of exchange with other currencies? Nope. Appreciation - relative value gain. Depreciation - relative value loss. 1 Reply Link to post Share on other sites More sharing options...
Fermat Posted March 12, 2013 Author Report Share Posted March 12, 2013 Given that the French and the Germans have the same currency, some might consider this a trick question.To my understanding, if something depreciates, it loses its value relative to other currencies. This doesn't mean literally a drop in the number of value, it means practically a drop in the value. For the theoretical french money to lose value relative to the german money (i.e. if it were to depreciate) then it doesn't mean 0.5 french coins to 10 german coins, as in your example. It means 2 french coins for 10 german coins. The value of the french money relative to the german money has decreased, and so you need MORE french money in order to acquire the same amount of german money.If the french money appreciated, THEN you would exchange 0.5 french coins for 10 german ones. Or alternatively, this might also happen if the german money depreciated and became less in french money. Does that make sense?Basically you have appreciation and depreciation misunderstood. Just think about it practically - if something loses its relative value and depreciates, is it suddenly going to have more buying power in terms of exchange with other currencies? Nope. Appreciation - relative value gain. Depreciation - relative value loss.Ahh, I get it now! So if the French currency appreciates, you can buy more of the German currency and if it depreciates you have to pay more of the French currency in order to get the same amount of German currency.Thanks a lot for the explanation, it helped a lot! Reply Link to post Share on other sites More sharing options...
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