13.Appreciation And Depreciation

However, over the next few years, the car continues to lose value at a more gradual pace. This is considered to be depreciation as well.

Currency appreciation and depreciation are changes in the value of the currency that are driven by market forces rather than by government mandate.

For example, in an attempt to repay certain loans, in 1998 the Central Bank of Russia announced the coming devaluation of the ruble. The exchange rate, which was currently six rubles per U.S. dollar, would over a period of time change to 9.5 rubles per dollar, effectively a depreciation of 34%.

However, prior to the change, there was a widespread panic within the former Communist nation, and the value of the ruble dropped due to many people in Russia opting to trade in their securities prior to maturity.

In a single day, following the announcement, the Russian ruble was depreciated by an amazing 25%.

The same sort of crisis occurred in the 1920’s with the crash of the U.S. stock market. In that time, a nationwide panic set in, and people rushed to the banks to withdraw cash that was not available or to trade in securities and stock options that were not matured. In running to the bank, people actually caused the crash rather than escaped it.