Exchange Rates
Introduced| English |
|---|
| currency/ˈkʌrənsi/ |
| exchange rate/eksˈtʃeɪndʒ reɪt/ |
| Appreciation/əˌpriːʃɪˈeɪʃn/ |
| Depreciation/dɪˌpriːʃɪˈeɪʃn/ |
| floating exchange rate/ˈfləʊtɪŋ eksˈtʃeɪndʒ reɪt/ |
The price of one currency in another
- An exchange rate 汇率 is the price of one currency 货币 in terms of another.
- For example: how many yuan it takes to buy one US dollar.
- Because it is a price, it can rise or fall like any other.
- Two words describe those moves — and they are easy to mix up.
An exchange rate is:
It says how much of one currency buys another.
When a currency becomes more valuable and buys more foreign currency, it has ______.
More foreign currency per unit = appreciation.
One currency's appreciation is always the other currency's depreciation.
They are two sides of the same price move.
Appreciation and depreciation
- Appreciation 升值 means a currency becomes more valuable — it buys more foreign currency.
- Depreciation 贬值 means a currency becomes less valuable — it buys less.
- The catch: one currency's appreciation is always the other's depreciation.
- If the dollar rises against the yuan, the yuan falls against the dollar.
Appreciation or depreciation?
A currency appreciates when it buys more foreign currency, and depreciates when it buys less. One currency's appreciation is the other's depreciation.
If $1 goes from buying 7 yuan to buying 8 yuan, then:
Each dollar buys more yuan, so the dollar rose; one currency's gain is the other's loss.
If $1 falls from 7 yuan to 6 yuan, the dollar has:
Each dollar now buys fewer yuan, so it lost value.
Reading a rate change
- Worked idea. Suppose $1 buys 7 yuan. If$1 now buys 8 yuan, the dollar has appreciated (each dollar buys more yuan) — and the yuan has depreciated.
- If instead $1 falls to 6 yuan, the dollar has depreciated.
- Trick to remember: if your currency buys more foreign money, it appreciated.
- Always name which currency moved — "the dollar appreciated against the yuan."
A floating exchange rate is set by:
Floating means the market sets it freely, not the government.
Floating rates
- Most major currencies use a floating exchange rate 浮动汇率.
- It is set freely by the supply of and demand for the currency in world markets.
- No government fixes it — it moves minute by minute as trading happens.
- The next lesson models exactly how that supply and demand set the rate.
An exchange rate is the price of one currency in another. Appreciation = more valuable (buys more); depreciation = less valuable. One currency's appreciation is the other's depreciation ($1 = 7 \to 8$ yuan means the dollar appreciated, the yuan depreciated). Most rates float, set by supply and demand.