A Thai product priced at 360 baht costs 10 dollars at e = 36. At e = 40 with its baht price unchanged, it costs 9 dollars. Baht depreciation lowers its dollar price.
What is this lesson explaining?
Define e as baht per dollar. A higher e is baht depreciation: more baht are needed for a dollar. A lower e is appreciation. Some textbooks quote the inverse, so always write the units first.
q = eP*/P compares foreign goods converted into baht with Thai goods. A higher q makes foreign goods relatively dearer and Thai goods more price-competitive. Net exports may rise once trade volumes respond sufficiently, but not necessarily immediately.
KEY MODEL
e = THB per USD
q = eP*/P
eNominal exchange rate: baht per dollarP*, PForeign basket price in dollars and Thai basket price in bahtqRelative foreign price; a rise means real depreciation under this definition