Foreign exchange rates
| English | Chinese | Pinyin |
|---|---|---|
| currency | 货币 | huò bì |
| exchange rate | 汇率 | huì lǜ |
| exports | 出口 | chū kǒu |
| appreciation | 升值 | shēng zhí |
| depreciation | 贬值 | biǎn zhí |
| imports | 进口 | jìn kǒu |
What's a currency 货币 worth?
- To buy goods from another country, you first need its money. The price of one currency in terms of another is the exchange rate 汇率.
- And like any price, it's set by supply and demand.
An exchange rate is:
It is the price of a currency, set by supply and demand.
How the rate is set
- A currency is demanded by foreigners who want to buy the country's exports 出口 or invest there.
- It is supplied when residents buy foreign goods or invest abroad.
- The rate settles where currency supply meets demand.
The exchange rate is the price of the currency, set where demand meets supply.
The foreign-exchange market
A currency is bought and sold like any good. More demand for it raises its exchange rate — it appreciates.
Currency depreciation means the currency has:
Depreciation is a fall; appreciation is a rise.
A rise in the value of a currency is called ______.
Appreciation is a rise; depreciation is a fall.
Appreciation 升值 and depreciation 贬值
- Appreciation: the currency rises in value (one unit buys more foreign currency).
- Depreciation: the currency falls in value (one unit buys less).
Appreciation makes exports dearer and imports 进口 cheaper; depreciation does the opposite
A weaker (depreciated) currency makes a country's exports:
A weaker currency lowers the foreign price of exports.
A stronger currency makes imports cheaper.
A strong currency buys more foreign goods, so imports cost less.
Why it matters
- A stronger currency makes imports cheaper but exports dearer.
- A weaker currency makes exports cheaper (more competitive) but imports dearer.
Worked example. At a rate of £1 = 1.30 dollars, a £2,000 UK export costs a US buyer 2,000 × 1.30 = 2,600 dollars. Going the other way, divide: a 650-dollar import costs 650 ÷ 1.30 = £500. (Pounds → dollars: multiply; dollars → pounds: divide.)
"Strong" currency isn't always "good". A strong currency helps importers and travellers but hurts exporters. Whether a rise or fall is good depends on who you are in the economy.
You've got it
- the exchange rate is the price of a currency, set by supply and demand
- appreciation = the currency rises; depreciation = it falls
- a strong currency → cheaper imports, dearer exports (and vice versa)