Introduction to Finance

Currency appreciation 
occurs when there is an increase in a cur-
rency’s value. A decrease in a currency’s value is called 
currency depreciation
. If we denote 
(foreign currency units)
(home currency value)
spot exchange rate 
rate being 
quoted for current delivery of the 
currency
currency appreciation 
occurs 
when there is an increase in a 
currency’s value
currency depreciation 
occurs 
when there is a decrease in a 
currency’s value
TA B L E 6 . 2
Selected Foreign Exchange Crossrates, Late February 2016
Currency
U.S. dollar
euro
yen
British pound
U.S. dollar
1.0
.9147
113.9900
0.7208
euro
1.0933
1.0
124.6000
0.7877
yen
0.0088
0.0080
1.0
0.0063
British pound
1.3873
1.2682
157.9300
1.0
Sources: www.money.cnn.com and www.reuters.com.

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C H A PT E R 6 International Finance and Trade
the most recent spot rate as SR
t
,
the earlier spot rate as SR
t
–1
, and the percentage change in a 
foreign currency as %FC Change, we have the following:
%FC 
Change =
SR
t
− SR
t
− 1
SR
t
− 1
(6.2)
Let’s use an example where the spot rate for a euro increased from a $1.09 value last year to 
a current spot rate of $1.12. The percentage change in the foreign currency (euro) would be,
%FC (euro) Change =
$1.12 − $1.09
$1.09
=
$0.03
$1.09
= 2.75%
In other words, the euro would have appreciated by 2.75 percent relative to the U.S. dollar.
If, instead, the value of a euro declined from $1.09 to $1.07 the percentage change in the 
euro would be calculated as,
%FC (euro) Change =
$1.07 − $1.09
$1.09
=
−$0.02
$1.09
= − 1.83%
Thus, the euro depreciated by 1.83 percent relative to the U.S. dollar.