A decrease in the value of a currency relative to others?

• A. Currency Depreciation
• B. Currency Appreciation
• C. Purchasing Power
• D. Monetary Inflation

Answer: (A)

The situation described is currency depreciation. When a currency depreciates, its value falls relative to other currencies, meaning you need more of that currency to buy the same amount of foreign currency, or, from another view, foreign currency costs more in domestic terms. This makes imports more expensive for residents and can make exports cheaper for buyers abroad, which is a common effect of a weaker currency. The opposite movement is currency appreciation, where the currency strengthens. Purchasing power refers to what money can buy domestically, not its value on the international market, and monetary inflation concerns a rise in the money supply and prices, not the currency’s relative value.