AP Macroeconomics Flashcards: Exchange Rates
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 10 cards to help you master important concepts.
An exchange rate moves from 1 Euro = 1.05 USD to 1 Euro = 0.98 USD. Has the Euro appreciated or depreciated?
The Euro has depreciated because it is now less valuable and can buy fewer U.S. Dollars.
Card 1 of 10
All Flashcards (10)
An exchange rate moves from 1 Euro = 1.05 USD to 1 Euro = 0.98 USD. Has the Euro appreciated or depreciated?
The Euro has depreciated because it is now less valuable and can buy fewer U.S. Dollars.
If 1 British Pound (£) can be exchanged for 1.25 U.S. Dollars ($), calculate the value of 1 U.S. Dollar in terms of British Pounds.
To find the value of one U.S. Dollar, you calculate the reciprocal: 1 / 1.25 = 0.80. Therefore, $1 is worth £0.80.
If the exchange rate changes from $1 = ¥150 to $1 = ¥160, has the U.S. Dollar appreciated or depreciated against the Japanese Yen?
The U.S. Dollar has appreciated because it has become more valuable, allowing it to buy more Japanese Yen.
What is the relationship between appreciation of one currency and the depreciation of another in a currency pair?
The relationship is inverse; if one currency appreciates against another, the other currency must have depreciated relative to the first.
What is an exchange rate?
The exchange rate is the price of one currency in terms of another currency, as determined in the foreign exchange market.
If the Euro depreciates relative to the U.S. Dollar, what has happened to the U.S. Dollar?
If the Euro has become less valuable (depreciated) compared to the U.S. Dollar, then the U.S. Dollar must have become more valuable (appreciated) relative to the Euro.
Define currency appreciation.
Currency appreciation occurs when one currency becomes more valuable in terms of another, meaning it can purchase more of that other currency.
What is the primary function of the foreign exchange market?
The primary function of the foreign exchange market is to facilitate the exchange of one currency for another.
How are currencies valued against each other?
Currencies are valued relative to one another, with the exchange rate representing this relative price or value.
Define currency depreciation.
Currency depreciation occurs when one currency becomes less valuable in terms of another, meaning it can purchase less of that other currency.