This reading covers:
Determine whether the following currencies have appreciated or depreciated.
|Currency pair||Current exchange rate||Exchange rate three years later|
In USD/EUR, the quoted exchange rate decreases → EUR depreciates (relative to USD), USD appreciates.
In INR/EUR, the quoted exchange rate increases → USD appreciates (relative to INR), INR depreciates.
In CHF/USD, the quoted exchange rate decreases → USD depreciates (relative to CHF), CHF appreciates.
Nominal exchange rate is the quoted currency exchange rate at any point in time.
Real exchange rate adjusts the nominal exchange rate for inflation in each country compared to a base period.
Example 1 from the curriculum will help understand these concepts better.