Appreciation

Question 1

What is the term for the increase in the value of a currency?

Answer 1

Appreciation

Appreciation occurs when a currency strengthens relative to others, increasing its purchasing power.

Question 2

What is the term for the decrease in the value of a currency?

Answer 2

Depreciation

Depreciation occurs when a currency weakens relative to others, reducing its purchasing power.

Question 3

How does currency appreciation impact exporting businesses?

Answer 3

Sales are likely to fall as products become more expensive compared to overseas rivals’

Exporting businesses may need to lower prices and accept lower profit margins to remain competitive.

Question 4

What may exporting businesses do in response to currency appreciation?

Answer 4

Lower prices and accept lower profit margins

This strategy is often necessary to compete against cheaper foreign products.

Question 5

How does currency depreciation impact exporting businesses?

Answer 5

Sales are likely to rise as products become cheaper when compared to overseas competitors

This can lead to increased demand for exports.

Question 6

How does currency appreciation affect importing businesses?

Answer 6

Costs are likely to fall as raw materials from overseas become cheaper

This can result in higher profit margins or savings that can be passed on to customers.

Question 7

What can importing businesses do when costs fall due to currency appreciation?

Answer 7

Pass these savings on to customers or achieve higher profit margins

This can improve their competitive position in the market.

Question 8

How does currency depreciation affect importing businesses?

Answer 8

Costs are likely to rise as raw materials from overseas become more expensive

This situation can pressure businesses to find cost-saving measures.

Question 9

What actions might businesses take in response to rising costs from currency depreciation?

Answer 9

Seek domestic suppliers to reduce costs and maintain profit levels

This can help mitigate the impact of increased import costs.