Cambridge O Level Business Studies · Syllabus 7115 · External Influences on Business Activity
Appreciation
What is Appreciation?
A rise in the value of a currency relative to another currency, so that one unit of it buys more foreign currency than before. For a business whose home currency appreciates, imported inputs become cheaper measured in home currency, while its exports become more expensive for foreign customers paying in their own currency, weakening export competitiveness. Appreciation is therefore favourable to importers and unfavourable to exporters, and is neither automatically good nor automatically bad for an economy as a whole.
This definition is part of the External Influences on Business Activity chapter in Cambridge O Level Business Studies.
Appreciation in context
Government policy, environmental and ethical expectations, and globalisation are external forces a business cannot control but must trace through to a specific effect on itself. A change in taxation, government spending or interest rates reaches a business's costs, prices, demand and cash flow by a different route each time. A private cost is paid by the business itself; an external cost falls on a third party outside the decision — residents living with pollution, for example. Appreciation of the home currency helps importers and hurts exporters, and depreciation does the reverse, so the direction of any exchange-rate effect depends on naming the currency and the firm's position.