What are the changes in the exchange rateassume that united, Ask an Expert

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What are the Changes in the exchange rate

Assume that United States is our home country and that current euro exchange rate in direct notation is SD= 1.5 (euro/USD). In indirect notation, SI= 0.667 (USD/euro). If euro becomes more expensive in terms of USD we say that USD has depreciated against euro (lost in value). This means that SD has increased (to say SD= 1.6) and that SI has fallen (to 0.625). If euro becomes less expensive we would say that USD has appreciated against the euro. In such a case, SD would fall and SI would increase. Of course, when USD depreciates against euro, the euro appreciates against the USD.

Remember:

A foreign currency is more expensive Û the domestic currency has depreciated

A foreign currency is less expensive Û the domestic currency has appreciated

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9582317

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