Exchange Rates

Question 1

Exchange Rates

Answer 1

The rate at which one currency is exchanged for another

Question 2

Effects of exchange rates on imports

Answer 2

If exchange rates are £ 1 = $2 every dollar UK wants to buy will cost 50p.
So an item imported from USA a UK citizen will need to pay £5
If the exchange rate goes down:
USA £1 = $1: every dollar we want to buy will be more expensive = £1
For an exported item to the US the US customer will pay £10 and a UK national will have to pay £10
So imports become more expensive.

Question 3

Effects of exchange rates on exports

Answer 3

October 2000 £100/0.57 = €175.43
December 2008 £100/.088 = €133.63
If exchange rates decrease exports are cheaper and are purchased more by overseas nationals.
The reverse is true if exchange rates rise.
The falling pound also has the effect of increasing import prices as it become more expensive to buy overseas products as more overseas currency is required

Question 4

Other factors that affect the sales of imports and exports

Answer 4

• Style and image e.g. ipod touch
• Quality e.g. Dyson Hoover
• Reliability