Exchange rate?

Question

a) For each case below, state whether the euro has appreciated or depreciated and give an example of an event that could cause the change in the exchange rate.

(i) The spot rate goes from 450 euros/Mexican peso to 440 euros/Mexican peso.

(ii) The spot rate goes from 0.011 Mexican pesos/euro to 0.006 Mexican pesos/euro.

(iii) The spot rate goes from 1.48 euros/British pound to 1.51 euros/British pound.

(iv) The spot rate goes from 0.73 British pounds/euro to 0.75 British pounds/euro.

Answer 1

Dear friend,

1. In the 1st case Eur is appreciated as the before 1 peso = 450 eur. and now 1 peso= 440 eur.

2. In the 2nd case spot rate is falling from 0.011 to 0.006. this means 1 euro is now depreciated to 0.006 as compared to its previous value 0.011.

3. In the 3rd case 1 GBP= 1.48 Eur and now it has become 1 GBP= 1.51 Eur. here euro is depreciated and GBP is appreciated.

4. In the last case, 1 euro= 0.73 GBP and now it is 0.75 GBP clearly shows that Euro appreciated.

Answer 2

1.appreciation of euro

2.depreciation of euro

3.depreciation of euro

4.appreciation of euro

The euro will appreciate in the spot market (and futures market) if any bit of good news is released on the economic/political front such as greater than expected real gdp figures in europes top markets, any international policy that makes trade easier and cheaper; increased consumer confidence, etc.

The same idea in reverse for a euro depreciation.