Depreciation can be easily related to the life of a car.  As soon as you drive a new car off the lot, the value is almost cut in half.  This is extreme 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.

On the flip side of the coin, too fast of an appreciation sets up a country for inflation, or an increase in the retail value of products sold to the public based on currency valuation.  While inflation is bound to occur, it can be minimally tempered through the use of the currency valuation.

Appreciation can be related to a vehicle as well.  Often, men enjoy taking old cars and restoring them to their original beauty.  In doing so; they drastically increase the value of the vehicle or appreciate it.

The ever changing rates of currency conversion and volatility of the market create an inherent market risk, or a day to day potential to experience loss due to fluctuation in securities prices.  There is no way to diversify this type of risk, as it is always going to affect investment to a certain degree.  However, some risk can be offset by particular types of investments or ways of investing that are more secure or protected.

Of course, do not delude yourself into thinking that you can rid yourself of all possible risk factors on the market.  There is always a cloud hanging over your head waiting to burst, and all it takes is one little pinprick.  You must always exercise caution, though the idea of playing the stock market entails danger and excitement inherently.