Exchange Rates

Question 1

What is an exchange rate

Answer 1

The price of one currency expressed in terms of another currency

Question 2

When exchange rates increase what has happened to the pound

Answer 2

The value has increased, it has gotten stronger, it has appreciated in value

Question 3

How does exchange rates impact business activity

Answer 3

Price of exports in international markets, cost of goods, revenue and profit overseas

Question 4

What is an export

Answer 4

Goods and services leaving the UK.

• UK firms wont except foreign currency so the foreign firm has to convert their currency into £

Question 5

What is an import

Answer 5

Goods and services entering UK.

• Foreign firms wont accept £, so uk firms importing need to convert £ into the foreign currency

Question 6

How does a change in the value of the £ affect importers and exporters

Answer 6

Strong
Pound
Imports
Cheap
Exports
Dear (expensive)

Weak
Pound
Imports
Expensive
Exports
Cheap

Question 7

How does exchange rates affect the price

Answer 7

• Aboard can increase or decrease according to changes in the exchange rate so UK firms will respond depending on the PED
• Can stay the same

Question 8

How does exchange rates affect products

Answer 8

• UK firms may consider a USP/ quality to become more competitive abroad

Question 9

How does exchange rates affect promotion

Answer 9

More advertising

Question 10

How does exchange rates affect place

Answer 10

• Charge the customer for the distribution costs which increases the price abroad
• Business could make the product abroad, this lowers shipping costs

Question 11

What causes an increase in the exchange rate (stronger pound)

Answer 11

• Increasing demand for exports = higher demand for the currency
• Lower demand for imports = lower demand for the currency
• Speculation – traders may bet that the exchange rate will rise
• An increase in interest rates – making it more attractive to hold the currency