Exchange Rates and International Transactions Two types of changes in exchange rates Depreciation of home country's currency A rise in the home currency prices of a foreign currency It makes home goods cheaper for foreigners and foreign goods more expensive for domestic residents Appreciation of home country's currency A fall in the home price of a foreign currency It makes home goods more expensive for foreigners and foreign goods cheaper for domestic residents Copyright C 2003 Pearson Education, Inc Slide 13-7Copyright © 2003 Pearson Education, Inc. Slide 13-7 • Two types of changes in exchange rates: – Depreciation of home country’s currency – A rise in the home currency prices of a foreign currency – It makes home goods cheaper for foreigners and foreign goods more expensive for domestic residents. – Appreciation of home country’s currency – A fall in the home price of a foreign currency – It makes home goods more expensive for foreigners and foreign goods cheaper for domestic residents. Exchange Rates and International Transactions