Depreciation and Appreciation Depreciation is a decrease in the value of a currency relative to another currency a depreciated currency is less valuable(less expensive) and therefore can be exchanged for (can buy a smaller amount of foreign currency $1/-$1.20/E means that the dollar has depreciated relative to the euro(or e decreases). It now takes $1.20 to buy one euro so that the dollar is less valuable The euro has appreciated relative to the dollar it is now more valuable Copyright 2012 Pearson Education. All rights reserved 14-7Copyright © 2012 Pearson Education. All rights reserved. 14-7 Depreciation and Appreciation • Depreciation is a decrease in the value of a currency relative to another currency. – A depreciated currency is less valuable (less expensive) and therefore can be exchanged for (can buy) a smaller amount of foreign currency. – $1/€ → $1.20/€ means that the dollar has depreciated relative to the euro (or E €/ $ decreases). It now takes $1.20 to buy one euro, so that the dollar is less valuable. – The euro has appreciated relative to the dollar: it is now more valuable