Currency appreciation and depreciation - Wikipedia Currency appreciation and depreciation For the accounting term, see Depreciation. Foreign exchange Exchange rates Currency band Exchange rate Exchange - rate regime Exchange - rate flexibility Dollarization Fixed exchange rate Floating exchange rate Linked exchange rate Managed float regime Dual Exchange Rate Markets Foreign exchange market Futures exchange Retail foreign exchange trading Assets Currency Currency future Currency forward Non-deliverable forward Foreign exchange swap Currency swap Foreign exchange option Historical agreements Bretton Woods Conference Smithsonian Agreement Plaza Accord Louvre Accord See also Bureau de change Hard currency Currency pair Foreign exchange fraud Currency intervention William Huskisson, Question concerning the depreciation of our currency, 1810 Currency depreciation is the loss of value of a country 's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system in which no official currency value is maintained. Currency appreciation in the same context is an increase in the value of the currency. Contents 1 Causes 2 Effects 3 See also 4 References Causes In a floating exchange rate system, a currency 's value goes up ( or down ) if the demand for it goes up more ( or less ) than the supply does. In the short run this can happen unpredictably for a variety of reasons, having to do with trade flows, speculation, or other factors in the international capital market. For example, a surge in purchases of foreign goods by home country residents will cause a surge in demand for foreign currency with which to pay for those goods, causing a depreciation of the home currency. A longer - run trend of appreciation ( or depreciation ) is likely to be caused by home country inflation being lower ( higher ) on average than inflation in other countries, according to the principle of long - run purchasing power parity. Effects An appreciation of a country 's currency makes it cheaper to buy foreign currency with which to pay for foreign goods, leading to more of that activity, and leading to downward pressure on the home price level as the foreign - goods component of the market basket, used for calculating the price level, becomes less expensive. In contrast, purchases of home country goods by foreigners become more expensive since the home country currency has become more expensive to obtain. A depreciation of the home currency has the opposite effects. See also Capital appreciation ( accounting and finance ) Floating exchange rate Fixed exchange - rate system Inflation Marshall -- Lerner condition References Jump up ^ `` The Impact of falling exchange rate Economics Help ''. www.economicshelp.org. Retrieved 2016 - 07 - 11. Google Define : Currency depreciation This money or currency - related article is a stub. You can help Wikipedia by expanding it. Retrieved from `` https://en.wikipedia.org/w/index.php?title=Currency_appreciation_and_depreciation&oldid=775739842 '' Categories : Foreign exchange market Currency Inflation Monetary policy Money stubs Talk Contents About Wikipedia Čeština Dansk Македонски Nederlands Polski Svenska Edit links This page was last edited on 16 April 2017, at 20 : 14. Text is available under the Creative Commons Attribution - ShareAlike License ; additional terms may apply. By using this site, you agree to the Terms of Use and Privacy Policy. Wikipedia ® is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization. About Wikipedia

Question: how does a currency lose or gain value
Answer: if the demand for it goes up more (or less) than the supply does. In the short run this can happen