7.5b Exchange Rates

Question 1

What do exchange rates represent?

Answer 1

The value of one country’s currency in the terms of another

Question 2

How does a currency’s value change?

Answer 2

With demand - if more people want it the price will increase

Question 3

Where does the demand for the pound come from?

Answer 3

People who want to buy UK goods from abroad

Question 4

What happens to the pound if people want to import UK goods (UK exports go up)?

Answer 4

Demand is high so the price of the pound will rise

Question 5

What does the effect on a business of exchange rates depend on?

Answer 5

• If they are an importer or exporter

- The PED of the product

Question 6

Ways exchange rates can increase:

Answer 6

• Increase in exports improving demand
• Decrease in imports lowering supply
• Increase in interest rates encouraging foreign business to save in UK banks
• If foreign businesses wish to invest to invest in the UK, they will need to buy currency
• The government may buy the currency to increase its value

Question 7

What does it mean if the number opposite the £ increases?

Answer 7

The strength of the pound increases

Question 8

What does it mean if the number opposite the pound decreases?

Answer 8

The strength of the pound decreases

Question 9

Do UK importers want a stronger or weaker pound and why?

Answer 9

Stronger because it makes the product cheaper

Question 10

Do UK exporters want a stronger weak weaker pound and why?

Answer 10

Weaker because it makes their product cheaper to buy

Question 11

SPICED meaning

Answer 11

• Strong
• Pound
• Imports
• Cheaper
• Exports
• Dearer