Currency Depreciation in Numerical Test Questions
If you are new to numerical currency questions then you may be overwhelmed by challenges they present to test takers. They are usually presented in tables, charts or graphs and are incorporated into numerical reasoning tests to assess your mental abilities, that is, how you can manipulate with numbers mentally in your head. Without thorough practice it may be difficult to get around them. Hence, practice, determination and good understanding will go a long way to getting a grip to work them out. Below, we will look at basics of working out currency conversions questions when one rate of exchange weakens against the other.
How to work out currency depreciation questions
In your numerical test you may be faced with questions where you will have to calculate percentage by which one currency depreciates against the other. Do you know how to work it out? If not don’t fret. The below demonstrates simple question to show how to go about your workings. For the following consider the example below.
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By what percentage GBP strengthened or weakened against EUR between year 1 and year 2?
To work out the above question in numerical reasoning test may not be as puzzling as you may think. To start with you need to know how much of sterling could you trade for one euro during the first year. So you may calculate as follows; divide 1 GBP by 1.1752 EUR to get the figure you are looking for (1 EUR equals 0.8509 GBP). If you are not sure about this conversion then see previous tutorial on biginner currency conversions which demonstrates in detail how to formulate these calculations for currency exchange rate questions.
Note that you do not have to calculate the figure for year two as this information is already provided in the above table where 1 EUR equals 0.9052 GBP. Now once you have information of value of euro as compared to pound for year one and two you can make comparison and conclude your answer.
Note that pound has weakened against the euro as there is more sterling per euro in year two than in year one and hence its value has decreased. However, you may ask but why pound depreciated against euro if there is an increase from 0.8509 to 0.9051? In you numerical reasoning test be careful on this and do not fall into trap. Sterling has weakened against euro because in second year you can buy more pounds for euro than in the first year. In year 1 you can buy for one euro 0.8509 GBP whereas in year 2 you can buy for one euro 0.9052 GBP, hence you can conclude that pound had to weaken against euro. To expand on this you can refer to exchange rate questions on currency appreciation to gain greater understanding of this concept.
Now to finalise the above problem and work out the exact percentage depreciation simply calculate the percentage increase of these two values (0.9052 – 0.8509) / 0.8509 x 100 = 6.381%. If you are not sure as how to calculate percentage increases in numerical currency questions then see our guide on percentage increase. So, it may be concluded that GBP weakened by 6.381% between these two years.