Exchange Rates

Question 1

What are the effects of an appreciation in the Pound for imports and exports

Answer 1

Imports are cheaper for domestic consumers

Exports are more expensifve for foreign consumers

Question 2

What are the effects of an depreciation in the Pound for imports and exports

Answer 2

Imports are more expensive for domestic consumers

Exports arfe cheaper for forign consumers

Question 3

What are the factors affecting exchange rates

Answer 3

-Imports and exports
-Speculation
-Relative interest rates
-Relative inflation rates
-FDI
-Quantitative easing

Question 4

How do imports and exports affect exchange rates

Answer 4

If imports decrease,the supply of pounds will decrease,leading to an appreciation in the exchange rate and vice versa

If exports increase,the demand for pounds will increase,leading to an appreciation in the exchange rate and vice versa

Question 5

Imports affects the … curve
And exports affects the … curve

Answer 5

1. Supply
2. Demand

Question 6

What is speculation and how does it affect exchange rates

Answer 6

Speculation is when investors predict changes in a currency’s exchange rate to make a
profit (buy low,sell high)

If you predict that exports will increase in the future,then demand will increase,meaning that investors will buy more pounds now and sell more later.

Question 7

How do relative interest rates affect exchange rates?

Answer 7

When interest rates increase,more hot money inflows into the country,meaning that investors have to buy more pounds,increasing demand for pounds,causing a appreciation in the exchane rates and vice versa

Question 8

What are hot money flows