exchange rates Flashcards
exchange ratet
the value of one currency compared to another
appreciation
increase in exchange rate
depreciation
decrease in exchange rate
appreciation on the graph
increase in demand or decrease in supply
$/£ on y quantity of £ on x new equilibrium labelled
factors that cause an appreciation (increase in demand)
increase in exports FDI into UK speculation inflation is lower central bank buys money high interest rates
depreciation on graph
increase in supply or decrease in demand
$/£ on y quantity of £ on x
new equlibrium
factors that cause a depreciation
increase in imports
fdi out of the country
inflation is high
low interest rates
depreciaiton in the exchange rate leads to exports
exports cheaper, increase in exports
imports more expensive ==> fall in imports
decrease in trade deficit
SPICED
stronger pound imports cheaper exports dearer
DEPRECIATION
exports cheaper
more exports
increase in economic growth
more money in circular flow
Unemployment
AD shifts outwards => increase in output => an decrease in UNEMPLOYMENT due to derived demand for labour.
benefit firms dependant on exporting.
unemployment increase if firm is dependant in imports
cause of unemployment
raw materials more expensive, cop increases, profit decreases, make redundancies to maintain profit margins.
inflation
depretation in the exchange rate
cop increases =. prices increases => inflation increases
currency manipulation
the altering of a currencey to affect the exchange rates
Pros of currecny manip
boosts exports CA balance
Higher value of profits overseass
multiplier effect on output and GDP
