What is Depreciation?

Definition of Depreciation: It is calculated as the fall in the cost of a currency because of the market forces. This signifies that a single element of the depreciating money purchases less units of another currency compared to the one it did earlier. Generally, the economic essentials of the two different countries determine the relative cost among each. Depreciation also creates exports from one country with depreciating money and making the imports costlier. The exchange rates can be both flexible and fixed. The exchange rate remains fixed when the two countries decide to preserve a fixed rate for settling a trade difference between the Central Banks. In 1850, a small amount of gold was described as a thing having a value similar to nearly 20 dollars. On the other hand, an exchange rate remains flexible when two different nations decide to allow the international market forces fix the rate by the help of demand and supply. Most of the world trade continues with the flexible rate that fluctuates within the fixed limits.