Depreciation
Definition. Depreciation is a fall in the value of a currency against another currency under a floating or managed float exchange rate system, driven by market forces of demand and supply. One unit of the domestic currency then exchanges for fewer units of foreign currency.
It tends to make exports cheaper abroad and imports dearer at home, which can improve the trade balance over time. In a managed float the central bank may deliberately allow it.
This term belongs to Exchange Rate Policy in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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