Appreciation

Appreciation is a term used in accounting relating to the increase in value of an asset. In this sense it is the reverse of depreciation, which measures the fall in value of assets over their normal life-time.

In times of high inflation, appreciation will be common to all balance sheet assets. Generally, the term is reserved for property or, more specifically, land and buildings. In any viable modern economy, such property tends to increase in value over the years - if only because of the scarcity of usable land forces its price in a competitive situation. However, this belief has often caused speculative bubbles to arise.

In Currency

Appreciation is a rise of a Currency in a floating exchange rate.  Example: a rise in the Euros price in terms of Dollars, for example from $1.10 per Euro to $1.40 per Euro is a n appreciation of the Euro, and a depreciation of the Dollar. All things else equal,an appreciation of a countries currency makes its goods more expensive to foreigners

Dollar appreciation

The U.S. dollar appreciated about 15% against the Euro from January 2005 to November 2005.

An appreciation of the dollar against the Euro will have a positive effect on Americans that want to travel to Europe from the US (or other people with USD currency). The hotels and food and wine will all be “cheaper” in relative terms. Also, an importer of European goods in the US will find that importing French wines and Italian clothes and furniture will be cheaper and therefore more attractive. You would therefore expect to see an increase in travel from the US to Europe and also an increase in imports in the US from Europe.

On the other hand, exports from the US to Europe will suddenly be more expensive in relative terms, so you would expect to see fewer orders for US made goods and services from the Euro zone customers. Exports of US made goods should fall as the Europeans see USA made products 15% more expensive than they were 11 months ago. You will also expect to see fewer German tourists visiting Florida’s beaches and fewer English tourists visiting New York for shopping trips. In general, you would expect to see fewer European tourists visiting the USA as the US would suddenly seem 15% more expensive.

With any movement in exchange rates, there will be some winners (in some sectors) and some losers (in other sectors of the economy). In general, most Euro zone countries would readily welcome the depreciation of their currency so that their products that they produced were 15 % cheaper on the worlds markets (in comparison to the US made products). So for example; an Airbus plane will suddenly appear more affordable that a Boeing one on the international market.

On the other hand, all of the imported raw materials such as oil would suddenly be more expensive (in Europe) on the world markets. Considering that much of the world’s oil is priced in dollar terms, I don’t think the Europeans would be happy to see the appreciation of the dollar as compared to the Euro, making all of their imported products slightly more expensive..

But I imagine that the benefits of a depreciating Euro outweigh the negatives, and that most Europeans probably welcomed the ability to better sell their products on the world market (wines, cheeses, cars, airplanes, and so on).