Exchange rates

What is an exchange rate?

The rate at which one currency may be converted into another.

What is exchange rate depreciation?

The value of a currency falls, it’s exchanged for less in a foreign country.

What is exchange rate appreciation?

When value of a currency rises, meaning it can be exchanged for more foreign currency.

Makes it cheaper to borrow from other countries.

What is the effect of exchange rate appreciation on consumers?

• Cheaper imports.

• Consumers can buy more foreign goods.

• Increases disposable income.

What is the effect of depreciation on consumers?

• Price of imports increase, increasing inflationary pressure.

• May deter investment as they do not expect return on investment.