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Depreciation of domestic currency

Y

yuli2513

Very Active Member
Hi,

I have a small question on the text on page 9 of CP1-08: Bond and money markets (Chapter 8).

The text is explaining the reason for holding cash and money market instruments. It states:
A cash investment in a strengthening currency (eg dollars) could prove attractive, even if the interest rates abroad were lower. As the domestic currency depreciated, the value in the domestic currency of overseas cash would increase.

I am wondering what the text I put in bold means, does it actually mean a foreign currency?

Thanks in advance!
 
I think it is somewhat redundant which might be why it is confusing. Say £1 = $2, but then the pound depreciates so £1 = $1. If you are a UK investor that holds dollars rather than pounds you've obviously doubled the number of pounds you have or in the slightly tortured language above 'the value in the domestic currency (£) of overseas cash ($)' has increased.
 
James789 said:
I think it is somewhat redundant which might be why it is confusing. Say £1 = $2, but then the pound depreciates so £1 = $1. If you are a UK investor that holds dollars rather than pounds you've obviously doubled the number of pounds you have or in the slightly tortured language above 'the value in the domestic currency (£) of overseas cash ($)' has increased.
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Hi, thanks a lot for the answer! It makes much more sense now to me.
 
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