Depending on the exchange rate system applied, changes in the price of a currency with respect to another can be defined in the following terms:
Floating system
- Appreciation: the increase in the value of one currency compared to another (e.g. the euro appreciates against the dollar when its value increases from 1.06 dollars per euro to 1.07 dollars per euro).
- Depreciation: the loss of value of one currency compared to another (in the previous example, the euro appreciates while the dollar depreciates; more dollar units are required to purchase a single euro).
A bank’s markets division, also known as its Treasury, is part of its wholesale banking business. It is a highly specialized area that seeks to meet institutional and corporate customers’ investment and risk coverage needs. The retail banking area serves individual customers and also receives support from the markets area to design and manage products and manage the associated risks.
Fixed or semi-fixed currency systems
- Devaluation: the decline in the value of a currency resulting from a decision by the central bank (e.g. the August, 2015 decision by China’s central bank, the PBOC, to devaluate the country’s currency).
- Revaluation: the increase in value of a currency due to a decision by its central bank (e.g. on January 15, 2015, Switzerland’s Central Bank decided to scrap the Swiss Franc’s 1.2000 francs per euro cap, which it had set in September 2011. As a result of this decision, the franc’s value jumped from about 1.2000 francs per euro to about 0.8000 francs per euro.
