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Foreign exchange risk

1.2 Depreciation and appreciation of a currency

If a currency depreciates its price (exchange rate) has fallen.

More of it would be needed to purchase another currency and more of it could be
bought with another currency

If a currency appreciates its exchange rate has risen.

Less of it would be needed to purchase another currency and less of it could be
bought with another currency

If one currency appreciates then another currency depreciates.

$1.50 = £1 $1.60 = £1

The £ has appreciated (can now buy $1.60 instead of $1.50 with £1) and the $ has
depreciated (takes $1.60 instead of $1.50 to buy £1).

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