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What factors will depreciate the value of currency?

Posted on April 18, 2014 at 10:55 AM

The international value of currency will depreciate (decrease in value relative to another currency) due to the following factors:

 

1. Interest rates decrease - Foreigners will demand fewer bonds when interest rates fall (because foreigners will make less money off our interest-bearing assets).

 

2. Tastes and preferences for goods decrease - If foreigners demand fewer products produced over here, then the currency will depreciate.


3. Inflation increases - If prices are relatively higher over here than overseas, then foreigners will not want our goods and we will want cheaper goods overseas.

 

4. Incomes increase - If this economy is strong and foreign economies are weak, foreign economies cannot afford our goods. However, we can afford to purchase foreign goods.

  

AP Macroeconomics Unit 6 International Trade

Categories: AP Macroeconomics, Macro Unit 6 International Trade

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