Exchange rates

Question 1

define depreciation

Answer 1

means that the value of the British pound falls relative to other currencies

Question 2

adv of depreciation

Answer 2

• weaker pound makes UK exports cheaper for foreign buyers= increase demand for British goods abroad
  e.g. UK exporters like car manufacturers may see rise in demand from overseas markets
  = improve the UK’s export performance
• price of foreign goods rises= can reduce the quantity of imports demanded
  = this improvement in the trade balance (increased exports and reduced imports) could help boost the UK’s current account

Question 3

disadv of depreciation

Answer 3

• imports become more expensive for UK consumers and businesses