Appreciation, Depreciation, Devaluation, Revaluation
1 Quick Explanation 1–3 min
Under a flexible system: currency falls = depreciation, rises = appreciation.
Under a fixed system: official fall = devaluation, official rise = revaluation.
2 Detailed Notes
Definition
Definitions
- Depreciation: fall in the value of domestic currency in terms of foreign currency under a FLEXIBLE system (market-driven).
- Appreciation: rise in value of domestic currency under a FLEXIBLE system.
- Devaluation: official reduction in the value of currency under a FIXED system (by government order).
- Revaluation: official increase in value of currency under a FIXED system.
Formula
The big difference
Flexible system → Depreciation / Appreciation (market)
Fixed system → Devaluation / Revaluation (official)The cause — market forces vs government action — decides which word to use.
Key idea
Effects of depreciation
- Exports become cheaper for foreigners → exports rise.
- Imports become costlier → imports fall.
- Net effect: BOP improves (export-led correction).
- Side effect: costlier imports → inflation pressure.
Key idea
Effects of appreciation
- Imports cheaper → imports rise.
- Exports costlier → exports fall.
- BOP worsens but inflation falls (cheaper imports).
Example
Numerical style
Rate moves from ₹80/$ to ₹85/$ → rupee DEPRECIATED (need more rupees per dollar). If it moves from ₹85/$ to ₹80/$ → rupee APPRECIATED.
In One Minute
Flexible system: market-driven = appreciation (up) / depreciation (down). Fixed system: official = revaluation (up) / devaluation (down). Depreciation boosts exports, hurts imports.
Important for Exam
- ⭐ 1-mark: distinguish depreciation & devaluation.
- ⭐ 3-marks: effects of depreciation on exports/imports.
- ⭐ Which word under which system.
- ⭐ ₹85/$ vs ₹80/$ — identify appreciation/depreciation.
Watch & Learn
Watch on YouTubeDepreciation & Devaluation - Appreciation & Revaluation Of Currency -Foreign Exchange Rate-(Part-7)
by Creative Economics
Why watch? The classic board comparison.
Open on YouTube Watch on YouTubeDepreciation & Devaluation - Appreciation & Revaluation Of Currency -Foreign Exchange Rate-(Part-7)
by Creative Economics
Why watch? Effects on BOP and inflation clearly.
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