Chapter 26: Continuation 2 Flashcards
1
Q
KEYWORD: Depreciation
A
A currency is said to depreciate if the value of the currency goes down with respect to another. (the exchange rate falls)
2
Q
KEYWORD: Appreciation
A
A currency is said to appreciate if the value of the currency increases with respect to another. (the exchange rate rises)
3
Q
KEYWORD: Exchange rate
A
The rate at which one country’s currency can be exchanged for that of another.
4
Q
What effect does depreciation have on businesses - importers?
A
- Imports will appear to be more expensive
- Businesses which rely on imports will have to pay more
5
Q
What effect does depreciation have on businesses - exporters?
A
- Exports are relatively cheaper overseas: this should increase the demand for them
- Businesses which export will benefit from increased sales
6
Q
What effect does depreciation have on the country?
A
- If a lot of raw materials and semifinished goods are imported then it could trigger inflationary pressure on the economy
- More demand for its currency thus the value of the currency rises
- More exports may lead to an increase in the balance of payments
7
Q
What effect does appreciation have on businesses - importers?
A
- Imports will appear to be cheaper
- Businesses selling imported goods or relying on imported raw materials will benefit from reduced costs
8
Q
What effect does appreciation have on businesses - exporters?
A
- Exports are relatively more expensive overseas; this may decrease their demand
- Businesses which export may suffer from reduced sales
- Exporters may choose to cut their prices, reduce output and cut back employment levels
9
Q
What effect does appreciation have on the country?
A
- More imports may lead to a decrease in the balance of payments
- Local businesses compete with cheaper imported goods and reduce costs and selling price
- May reduce inflation
- Fall in exports may result in a fall in GDP and unemployment in the affected sectors
