Question

Define the following as regards currency:
1) devaluation;
2) revaluation;
3) depreciation;
4) appreciation;
5) soft or weak;
6) hard or strong;
7) Eurodollar;
8) euroyen.

Answer 1

Devaluation : Devaluation is a process in which the government deliberately lowers the value of its country's currency with respect to another currency. This is done sometimes to reduce the cost of exports to be more competitive in the market as purchasing power of the other currency increases.

Revaluation: It is the opposite of devaluation in which the value of the currency is increased based on the fluctuations in the foreign currency market. One of the main reason for revaluation is the changes in the interest rate between various countries which is affecting the country's economy.

Depreciation : Depreciation is a term coined to address the loss in value of the country's currency with respect to other currencies. This decrease in the value might be due to interest rate fluctuations, unstable economy or weak political situation of the country.

Appreciation: It is a term used to indicate an increase in value of the currency solely because of the country's economical stability, strong government policies and others. The government has no role in bringing out the effect on the currency's value.

Soft or weak: Soft currencies are one which fluctuates mostly on the lower side due to economical and political instability. It is because of these conditions the currency is not considered to be a good one by the traders and are hence considered to be weak as well.

Hard or strong : Hard currencies are those which are issued from a very strong and stable economy. Example of this is US Dollar, Euro.

Eurodollar: Eurodollars are US denominate deposits in institutions outside US. Since, these are deposited outside US, these are not much regulated and are outside the jurisdiction of Federal reserves.

Euroyen: These like Eurodollar but are Japanese yen denominated deposits in banks outside Japan. An example would be yen denominated deposits in U.S.