Which statement correctly defines depreciation and appreciation?

Which statement correctly defines depreciation and appreciation?

• A. Depreciation means a rise in the value of a currency; appreciation means a fall.
• B. Depreciation means a rise in the value of a currency; appreciation means a fall.
• C. Depreciation means a fall in the value of a currency; appreciation means a rise in the value of a currency.
• D. Depreciation means a change in price level; appreciation means no change.

Answer: (C)

In currency terms, depreciation is when a currency loses value relative to other currencies, while appreciation is when it gains value. This is a relative concept—value is measured against others. So the statement that depreciation means a fall in the currency’s value and appreciation means a rise in its value matches how exchange rates are understood. The same currency can rise against one currency and fall against another at the same time, depending on market forces. The other options flip the direction or confuse value with general price levels, which isn’t what depreciation and appreciation describe.

In currency terms, depreciation is when a currency loses value relative to other currencies, while appreciation is when it gains value. This is a relative concept—value is measured against others. So the statement that depreciation means a fall in the currency’s value and appreciation means a rise in its value matches how exchange rates are understood. The same currency can rise against one currency and fall against another at the same time, depending on market forces. The other options flip the direction or confuse value with general price levels, which isn’t what depreciation and appreciation describe.