Question

In$1999$, the euro was trading at $\backslash (0.90$per euro. If the euro is now trading at $\backslash )1.18$per euro, what is the percentage change in the euro’s value? Is this an appreciation or depreciation?

Short answer

The percentage increase within the value of the euro is $31.11$% which implies appreciation in the euro.

Step-by-step solution

Concept Introduction 

The exchange rate is the rate at which domestic currency is exchanged with foreign currency. The exchange rate provides the relative price of fine in terms of domestic and foreign currency. rate is extremely volatile and it affects the economy's foreign trade. rate may be calculated as:

$\text{Exchange Rate}\left(e^t\right)=\frac{\text{Foreign pricelevel}\left({\mathrm{P}}_t\right)}{\text{DomesticPricelevel}\left({\mathrm{P}}_{\mathrm{d}}\right)}$

Explanation of Solution

The exchange rate of the euro and dollar in 1999 is $ 0.90.

The exchange rate of the euro and dollar now's $ 1.16.

Calculation of percentage change in the exchange rate:

Percentage change $=\frac{1.18-0.90}{0.90}\times 100=31.11$%

Hence the worth of the euro increased and therefore the percentage increase within the value of the euro is 31.11% which implies appreciation in the euro.

From 1999 euro has been appreciated by 31.11 %. Appreciation in the euro would cause cheaper imports and foreign vacations.

From 1999 euro has been increased by 31.11 %. Appreciation of currency means an increase within the value of a domestic currency relative to a foreign currency. Appreciation of currency makes foreign goods cheaper relative to domestic goods.