Currency appreciation and depreciation

In the short run this can happen unpredictably for a variety of reasons, including the balance of trade, speculation, or other factors in the international capital market.

For example, a surge in purchases of foreign goods by home country residents will cause a surge in demand for foreign currency with which to pay for those goods, causing a depreciation of the home currency.

For example, starting in May 2022, because of the war in Russia and the partial military mobilization, a lot of Russians went to live in Armenia.

Thus, depreciation of a currency tends to increase a country's balance of trade (exports minus imports) by improving the competitiveness of domestic goods in foreign markets while making foreign goods less competitive in the domestic market by becoming more expensive.

In the international asset transactions, a change in a currency's value may give rise to a foreign exchange gain or loss.

If the bank cuts the interest rate or signals problems for the economy, the domestic currency depreciates.

[10] If a country relies on many imported goods, a currency depreciation can reduce living standards, weaken economic growth, and increase inflation.

[5] However, a depreciation can also strengthen domestic producers and increase aggregate output, making it a common policy option to facilitate economic recoveries.