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The economy comprises many terms connecting to the medium of exchange to gain optimum profits. The profits depend on many factors such as market conditions, export/import tax rates, several duties, etc. Appreciation and Depreciation are the terms used to determine the motion in the exchange rates, which is inducted by the market variation and fluctuation. The country often needs to fix the exchange rates in certain conditions. In any condition, the adjustment process of exchange rates with official consent is mentioned as devaluation and revaluation.
Appreciation: Definition
Currency appreciation and Depreciation are integral parts that impact the growth and development of the country’s economy massively. Appreciation is the increase or elevation in the valuation of a specific currency relative to others. Currencies of different countries appreciate concerning each other in several conditions and circumstances. Appreciation and Depreciation bring a remarkable difference in the valuation of capital assets of the country within a specific time limit. The most common factors which empower currency appreciation are:
- Increase in asset demand
- Impactful imbalance in deflation or inflation rate
- Frequent reduction in asset supply
The significant difference between appreciation and Depreciation relates to the increase and decrease of capital asset value over time.
Features:
Certain essential features of appreciation result in a colossal variation in the local and global market platform. Appreciation and Depreciation collectively impact the economy of any country with remarkable rise and fall. Let’s discuss some of the essential features of appreciation:
- Appreciation refers to the rise in the value of a particular currency against others on the force market platform.
- Many countries implement Currency appreciation and depreciation values to empower the country’s economy with a global competitive value.
- The measuring terminology of currency appreciation is not in absolute terms. The valuation varies according to the currency against which it is measured.
- The government schemes and policies, trade statistics and balance, local and global business cycles, and global interest rates influence the appreciation values.
Depreciation: Definition
The constant and frequent decrease in the monetary valuation in a particular interval is known as Depreciation. Rapid obsolescence and overuse can be the fundamental reason for Depreciation. Currency depreciation can be referred for the decrease in the valuation of any financial asset of any country. In general, Appreciation and Depreciation depend on the supply and demand of the currency or capital asset regarding the international currencies and market. Therefore, with the rise in Depreciation, the inflation rate will rise simultaneously.
Effect Of Depreciation:
Depreciation has a specific effect on the country’s economy and various factors. Appreciation and Depreciation collectively have a noticeable impact on any country’s economy, trade, and global market position. In the case of Depreciation, things are pretty complex as many other things vary simultaneously.
- The currency depreciation increases the domestic and local demand for the currency. It results in demand-pull inflation, which circulates the currency in its local market.
- Currency depreciation refers to the frequent and constant loss of the value of any currency against any foreign currency.
- Unstable political policies, economic objectives, interest rates differentials, and risk disinclination among investors and fundraisers are significant factors to result in Depreciation.
- With Depreciation, the import charges increase and eventually result in cost-push inflation.
- The export process is highly competitive, with no extra effort and planning. The long-term Depreciation can result in an extra reduction in incentives. It helps the small-scale industries and firms cut prices and leads to declined productivity and increased cost.
Difference between appreciation and Depreciation:
There are specific differences between appreciation and Depreciation in terms of before and after-effects on the country’s economy. Therefore, it is a broader perspective to analyze the appreciation and Depreciation in terms of the country’s economic growth. Usually, it originates from variations in the local and global market and export-import conditions. So, let’s have a look at the differences:
Appreciation | Depreciation |
The valuation of the currency increases against any foreign currency. | The valuation of the currency decreases or against any foreign currency. |
Due to appreciation, the demand and supply vary in the market. | Due to fluctuation in the depreciation values, the demand and supply are affected. |
Market forces can empower the appreciation in the country’s economy. | It is caused due to functions of the market forces. |
Education outside the country becomes cheap. | Education outside the country becomes costly. |
Import practices become cheap. | Import practices become costly. |
Conclusion:
In India, appreciation and Depreciation are usually controlled by the RBI. However, the process of both depends upon many factors collectively. Many countries voluntarily undergo currency appreciation and Depreciation to receive specific global leverage and achievement in the global market. It is how the country’s economic growth and development are raised according to the market growth and profitable fluctuation. The valuation of the currency is forced on the international market to the export-import benefits and power global market position.
