Calculation of appreciation / depreciation of currency
It never struck me that the students can get confused over this issue – but a query raised by one of our students made me realise this .. The issue raised is:

Situation 1:
Quote given : Re/$ = 40 (i.e 1$ = Rs.40)
$ appreciates by 10% – so what should the new quote be.

View 1: The new quote is 1$=44
View 2: The new quote is 1$ = 44.44
Solution: You have to read the situation like this –THE SAME DOLLAR WILL NOW FETCH MORE RUPEES”
Correct view : 1$=44

Situation 2:
Quote given Re/$ = 40 (i.e 1$=Rs.40)
Re depreciates by 10%
You have to read the situation like this – “THE SAME RUPEES WILL NOW FETCH LESSER DOLLARS”
So the solution is:
Rs.40 = 1$
or Rs.40 = 0.90$
or 1$ = [40/0.90] = 44.44

A currency is said to have appreciated if one is able to purchase more of the other currency against it after appreciation. Thus $1=Rs.50 changes to $1=55 then one is able to get more rupees for the same dollar – hence we say $ has appreciated by 10%. This also indicates that the rupee has depreciated but the percentage would change. When you quote it with reference to rupees because then your initial quote would be 1Re = 0.02$ and the new quote would be Re1=0.01818 (based on1$=Rs.55) which would indicate rupee has depreciated by 9.1%

I hope the above clears some fog over the issue…
cheers and happy studying


1 Response to “”

  1. 1 Priyanka August 8, 2008 at 5:49 am

    Thank you very much Sir for the explanation…it is indeed a gr8 pleasure to read your blog as i feel very much updated…!!

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