Question

The exchange rate between the U.S. Dollar and the British Pound starts at $1 = £0.5. It then changes to $1 = £0.75. Given this change, we would say that the U.S. dollar has ______________ while the British pound has _______________.

Answer 1

British Pound has depreciated while US dollar has appreciated.

Step-by-step explanation:

• Currency depreciation occurs when a specific currency worths less in terms of other currencies. In this case, at the beggining, we were able to buy one dollar with 0.5 pounds. Then, to obtain the same dollar, we have to pay 0.75 pounds (0.25 more pounds than before), which means that British pound worth less in terms of dollars.
• Currency appreciation occurs the opposite way: it happens when a specific currency worths more in term of others currencies. This is the case of US dollar: at the beggining we were able to buy 0.5 pounds with one dollar, while then, with the same dollar we can buy 0.75 pounds. We are able to buy more of other currencies when appreciation occurs.