Question

Very Briefly describe those economic factors that will cause a currency to appreciate relative to others over the long-run.

Answer 1

There are the times when currency remains consistent but sometimes due to several economic reasons value of currency depreciates and appreciates. When the value of currency falls it is said to be depreciated and when the value of currency increases it is said to be appreciated.

following factors which contribute towards appreciation:-

- Deflation- it is a situation when there is an overall decrease in the price of goods and services in the economy. when price decreases, it increases the purchasing power of the consumer. Now with the same amount one can consume more. it means the your currency has more value than before which enables you to spend less for the same goods which used to be purchased for more.

supply and demand:- when your currency is in high demand and used as a mode of exchange in most of the countries, the value for your currency increases. It means currency appreciates. on the other hand, if you have printed and supplied new currency, supply of money increases where demand is same, this depreciates the currency.

economic conditions:- If a country is in growing stage, which means GDP is high, production is taking place at a large volume this situation appreciates the currency. because your goods and services will the supplied at the global level and demand for the country's products rises. therefore it increases the value at of currency globally. If a country is facing recession, its currency depreciates.

amount of export and import- If country's exports are more than its imports, the value of currency appreciates against the value of other trading country. on the other hand if imports are more than the exports which is called trade deficit, this depreciates the value of currency against the trading partner.