Friday, April 10, 2009

Depreciation, appreciation,and devaluation

/A doubling of the pound is a halving of the dollar.by definition,the fall in the price of one currency in terms of one or all others is called a(depreciation).A relative rise in the price of a currency in terms of another currency is called a (appreciation).Evidently,the pound has appreciated in our example,and the dollar has undergone a large depreciation.
The term(devaluation) is often confused with the term(depreciation)Devaluation usually is defined to mean a rise in the price of gold relative to the currency in question.
Thus,Roosevelt devalued the dollar in 1933 when he raised the price of gold from$21 an ounce to $35 an ounce.In 1971 when Nixon and the INF raised gold,s official price from $35 to $38,and from $38 to$42.22in 1973,we say the dollar was devalued.(NOTE;A devaluation may also involve a depreciation.THUS,when the franc kept its previous gold price and the dollar raised its gold price,that meant a depreciation of the dollar relative to the franc;or,what is the same thing,an appreciation of the franc relative to the dollar.)
Devaluation defined .when gold Officially goes up in price relative to currency-as from $38 an ounce to $42.22- we say the currency has been devalued.
Depreciation defined. when the price of foreign currency rises relative to a given currency-e.g,, when the price of the German mark rose 25 per cent in the 1970s from about $0.32 to $0.40 per mark- we say the ( domestic) currency has depreciated ,and that the foreign currency has had a relative appreciation .
If all countries simultaneously raised the prices of gold by 100 or 200 per cent , there would be on depreciation or appreciation , but there would be a devaluation .

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