forex

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 December 2010 In case of appreciation or depreciation of a currency , in which currency adjustment is to be made i.e. in same currency which is appreciated/depreciated or in opposite currency
or
in home currency or in foreign currency
or
in that currency whose direct quote is given

Querist : Anonymous

Querist : Anonymous (Querist)

15 December 2010 Ply reply i am waiting. . .

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

25 July 2024 When dealing with foreign exchange rate adjustments due to currency appreciation or depreciation, the adjustments are typically made in relation to the currency pair itself, not the opposite currency pair or the home currency. Here’s a detailed explanation:

### Understanding Currency Appreciation and Depreciation

1. **Currency Appreciation**: Occurs when a currency strengthens in value relative to another currency. For instance, if the US dollar strengthens against the Japanese yen, it means fewer yen are needed to purchase one dollar.

2. **Currency Depreciation**: Occurs when a currency weakens in value relative to another currency. For example, if the euro depreciates against the British pound, it means more euros are required to purchase one pound.

### How Adjustments Should Be Made

When there is appreciation or depreciation of a currency, the adjustment should be made:

- **In the Same Currency Pair**: This means adjusting the exchange rate directly between the two currencies involved in the pair that has experienced the appreciation or depreciation. For example, if USD/JPY appreciates (yields fewer yen per dollar), the adjustment should reflect this change directly in the USD/JPY exchange rate.

- **Based on Direct Quote**: The direct quote is the current market rate for one unit of a foreign currency in terms of the home currency. Adjustments should be based on this direct quote to reflect the change in value accurately.

### Example Analysis

Let's illustrate with examples:

1. **Appreciation of USD against JPY**:
- Current rate: 1 USD = 110 JPY
- After appreciation: 1 USD = 115 JPY (fewer yen needed per dollar)

2. **Depreciation of EUR against GBP**:
- Current rate: 1 EUR = 0.85 GBP
- After depreciation: 1 EUR = 0.80 GBP (more euros needed per pound)

### Conclusion

To summarize, adjustments due to currency appreciation or depreciation should always be made in the same currency pair that has experienced the change. This method ensures that the adjustment accurately reflects the change in value between the two currencies involved. Adjusting in the opposite currency pair or in the home currency would not accurately represent the market dynamics of the currency pair in question.

Therefore, when calculating adjustments for forex transactions or revaluations, consider the direct quote of the currency pair and make adjustments accordingly to reflect the appreciation or depreciation in the exchange rate between the two currencies directly involved in the pair.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now

Summarize this with AI

ChatGPT Perplexity Claude Google AI Grok