exchange rates (4.3)

Question 1

what is currency

Answer 1

the system of money used in a country or group of countries

Question 2

what is an exchange rate

Answer 2

the price of one currency in terms of another country

Question 3

what is a rise in the exchange rate

Answer 3

the price of a currency increases in terms of another country.each pound will buy more units of another currency

Question 4

what is a fall in the exchange rate

Answer 4

the price of a currency falls in terms of another currency

Question 5

factors affecting demand for pounds

Answer 5

• uk goods become more desirable : eg. fall in price
• income rises in the eurozone : eurozone consumers can afford to buy more goods
• interest rates rise in the uk relative to other countries’ so eurozone savers would want to save more in the uk
• uk becomes more attractive for foreign investment : maybe corporation tax falls

Question 6

why do eurozone groups need pounds

Answer 6

• buy uk exports
• save in uk banks
• invest in uk

Question 7

factors affecting supply of pound

Answer 7

• eurozone goods become more desirable : eg. fall in price
• income rises in the uk : british consumers can afford to buy more goods
• interest rates rise in the eurozone relative to other countries’ so british savers would want to save more in the eurozone
• eurozone becomes more attractive for foreign investment : maybe corporation tax falls

Question 8

how to calculate currency conversion

Answer 8

POUND amount x EURO exchange rate

Question 9

what may happen if exchange rates fall

Answer 9

• increase in total demand
• increase in domestic output
• decrease in unemployment
• current account surplus
• rise in inflation
• decrease in total supply

Question 10

whats the effect of rise in the exchange rate on consumers

Answer 10

• improved standard of living
• increased tourism overseas
• fall in interest rates : to enable british producers to borrow more money for investments
• fall in inflation

Question 11

whats the effect of rise in the exchange rate on producers

Answer 11

• fall in import prices : benefit for producers who need to import raw goods
• rise in export prices : as many overseas consumers have price inelasticity of demand for british goods
• increased tourism overseas : travel agents will benefit
• fall in interest rates : to enable british producers to borrow more money for investments