Depreciation

Depreciation in foreign trade usually refers to a decline in the value of a country's currency relative to other currencies, i.e., the exchange rate of the domestic currency moves lower. Its core effects are: export goods priced in foreign currency become cheaper, thereby enhancing export competitiveness; import goods priced in domestic currency become more expensive, which may push up import costs and aggravate imported inflation. Usage scenarios include exchange rate risk analysis, quotation decisions, contract pricing, letter of credit settlement, and foreign exchange hedging arrangements. Note: Depreciation is the opposite of appreciation, but it is different from 'depreciation' in accounting (also translated as Depreciation), which refers to the allocation of the value of fixed assets; it is also different from 'devaluation', which usually refers to an official downward adjustment of the parity under a fixed exchange rate system. Foreign trade practitioners need to pay attention to the impact of depreciation on profits, collection cycles, and customer bargaining, and use tools such as forward settlement of exchange and options to hedge risks.