Exchange Rates Flashcards
1
Q
What is a fixed exchange rate? (3)
A
- pegged to another currency or gold
- set by the government/ central bank
2
Q
What is a floating exchange rate? (2)
A
- exchange rate varies
- according to market forces
3
Q
Four economic factors which could lead to depreciation of sterling (4)
A
- decreasing UK interest rates in comparison to other countries
- decreasing productivity
- increasing money supply faster than productivity
- higher relative inflation than other countries
- current account deficit
- capital account surplus
4
Q
Effect of exchange rate deprecation of sterling on exporters e.g UK car manufacturer selling cars in China (4)
A
- price of goods sold abroad would be cheaper in local currency terms
- making the exporter more competitive
- increasing sales
- profits increase
- potential share price increase
- downside, increased cost of imported raw materials
5
Q
Impact if depreciation in value of sterling on UK inflation? (3)
A
- inflation would rise
- imports become more expensive
- more exports
