Appreciation & Depreciation of Currency

• Appreciation: Think of your favorite superhero getting stronger! This happens when there's excess demand for a currency.
  • Example: More people want British pounds (maybe they love their tea!), so the pound strengthens, i.e., appreciates.
• Depreciation: Your superhero is feeling weak today. This happens when there's excess supply of a currency.
  • Example: Too many pounds floating around? Maybe everyone's on a coffee kick. The pound weakens, or depreciates.

What Causes These Changes?

• Increased Demand: People wanting more of a currency.
• Decreased Supply: Less of the currency available.
• Increased Supply: More of the currency available.
• Decreased Demand: People wanting less of a currency.

Exports and Imports

• Exports Go Up, Currency Appreciates: If Japan sells more video games, people need more Japanese yen to buy them.
• Imports Go Up, Currency Depreciates: If Japan buys more American jeans, they sell yen to get dollars, increasing yen supply.

 Inflation Impact

• Higher inflation makes your products more expensive, and nobody likes that!
  • Example: Indonesian noodles get more expensive; people buy less, and the rupiah depreciates.

Growth Rates

• Faster Growth, More Imports, Possible Depreciation: If the economy grows, people buy more stuff from abroad, possibly weakening the currency.
  • Example: Indonesia is booming! But they want more American tech, so rupiah might depreciate.
• But Wait, There's More! If growth attracts investments, currency might appreciate instead. It's a two-way street!

Portfolio Investments

• Buying stocks, bonds, etc.
• Inward: More investments into the UK? The pound gets a boost!
• Outward: Selling UK assets for US ones? The pound takes a dip.

 Foreign Direct Investment (FDI)

• Building or buying businesses.
• Inward: More businesses in Côte d'Ivoire? The West African CFA franc climbs up!
• Outward: Businesses leaving? The currency feels the pressure.