Appreciation – What is Appreciation?


Definition of Appreciation:
Appreciation can be described as a rise in the price of a currency of one country connected with another country. This signifies that single unit of the currency purchases large number of units of any other currencies than it did in the earlier stages. Generally, the economic essentials of two different countries help in finding the relative value. Appreciation also makes the export expensive and at the same time makes the imports less costly. The rates of exchange may be flexible or fixed. For fixing a foreign exchange rate, it is necessary for the two countries to agree on it for maintaining a fixed rate which in turn is used for settling the differences in trade between the Central banks. Earlier, the most popular fixed foreign exchange system was made of gold standard. In 1850, one small amount of gold was equal to 20 dollars and 4 silver pounds. When two different countries agree on the international market, the foreign exchange rate becomes flexible. Today, most of the trades are done with bendable exchange rates that keep on changing with fixed limits. India and China are exceptions.