5.4b Exchange Flashcards
What are exchange rates?
The measure of the value of one currency in another currency.
Why would the value of the pound be low/weak?
Imports are more expensive or exports are cheaper.
Why would the value of the pound be high/strong?
Imports are cheaper or exports are more expensive.
Why are the exchange rates important?
Globalisation and advances in technology means that most businesses trade in more than one country. Because different countries use different currencies, they need to exchange their currency into another.
How does exchange rates affect businesses?
A large business usually have bank accounts in many of the countries they operate in. However, small businesses don’t have numerous bank accounts. Therefore, to trade overseas, they need to go to a bank to change it, using exchange rates. This means that changes in in the rates can have a big impact on a business’s sales and profits.
Benefits for businesses?
If changes in rates benefit a business, it’s likely to make more money and profit. It can even reduce its prices to attract more customers, while still making plenty of profit.
What are the disadvantages to a business exporting goods overseas of having a strong pound?
The exports will be more expensive
Describe how the value of the pound becoming lower/weaker may benefit a business?
They will be able to export more goods overseas as it will make exporting cheap.
What is the definition of gross profit?
The amount of profit that a business makes before the business’s costs are deducted.
How can a country’s rate of interest have an impact on the exchange rates?
If the rate of interest is high in the UK, then more investors are wishing to put their money into the UK. This makes the value of pound increase, as there’s more demand to put money into the UK.
