And does change frequently. When the dollar price of pounds increases, for example, goes from

$1.5 for ￡1 to $2.25 for ￡1, we say that the value of the dollar has depreciated relative to the pound.

The same refers to any other FCC. More generally, currency depreciation means that it takes more

units of a country’s currency (dollars) to buy a single unit of some foreign currency (pounds, the

Euro, yen, etc.). Conversely, when the dollar price of pounds decreases — goes from $ 1.5 for ￡ 1 to

$1 for ￡1 — the value of the dollar has appreciated relative to the pound (the Euro, yen, etc.). In

general terms, currency appreciation means that it takes fewer units of a country’s currency (dollars)

To buy a single unit of some foreign currency (pounds, the Euro, yen, etc.).

If the dollar depreciates vis-a-vis the pound, the pound appreciates vis-a-vis the dollar. Conversely,

If the dollar appreciates vis-a-vis the pound, the pound depreciates vis-a-vis the dollar.

What forces will cause the demand and supply curves for FCC to change and thereby cause the

dollar to appreciate or depreciate? Consider briefly some of the more important factors determining

Exchange rates.

a) Changes in tastes. Any change in consumer tastes or preferences for the products of a foreign

country will alter the demand for or supply of that nation’s currency and change its exchange rate.

For example, if American and Japanese technological advances in computers make them more