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Exchange rate

The price of one currency in relation to another. An increase in value of the pound is called an appreciation. This means that the pound is stronger and that the pound costs more in terms of foreign currency. A decrease in the value of the pound is called depreciation / devaluation. This means that the pound is weaker and that the pound costs less in terms of foreign currency. A fall in the value of our currency against foreign currencies (known as depreciation) makes our exports (ie products sold to foreign customers) cheaper to customers in those countries where the rate has changed against our currency, but makes goods imported into our country (from countries where the rate has changed against our currency), more expensive for us. A rise in the value of the currency (known as appreciation) makes our exports more expensive to those customers where the rate has changed against our currency, but makes goods imported into the country (from countries where the rate has changed against our currency) cheaper for us.

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