Question

On April 16th the NOK/USD exchange rate was 7.7567. On May 16th the exchange rate was...

On April 16th the NOK/USD exchange rate was 7.7567. On May 16th the exchange rate was 8.1225. Which currency depreciated, which currency appreciated.

In the solution it says that the NOK depreciated and USD appreciated.

I do not understand as we are saying that 1NOK=7.7567 USD than 1NOK= 8,1225 So the Nok is stronger and the USD is weaker, what is wrong with my reasoning.

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Homework Answers

Answer #1

April 16th exchange rate 7.7567 NOK/USD or 1 USD = 7.7567 NOK

Here the base currency is USD. If the exchange rate increased, then we say that the base currency increased and vice versa.

May 16th exchange rate 8.1225 NOK/USD. So, the USD has appreciated (same as saying NOK has depreciated).

Another way to understand...

Consider this: On April 16th if you had 1 USD you could buy 7.7567 NOK

On May 16th if you had 1 USD you could buy 8.1225 NOK. Today, 1 USD buys more of NOK than on April 16th. So, USD has appreciated.

Can you please upvote? Thank You :-)

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