Exchange rates - p. 17-23 Flashcards
What does an exchange rate tell us?
An exchange rate tells us the price or value of one currency in terms of another. It tells us how much currency can be bought with a certain amount of another currency.
What’s an example of an exchange rate?
£1 = $1.50 so this means £1 will buy $1.50 in dollars.
What is the British pound as a currency called?
Pound sterling. This is also the name of the currency in Egypt, Lebanon, Syria and Sudan.
What are imports?
Goods and services that’s are produced in another country and sold to residents of this country.
What are exports?
Products produced domestically in one country and sole to residents of another country.
What happens when a british business imports something?
When a british business imports something, it must pay the producer of their own currency.
What is the Balance of payments?
3 main parts;
- Current account
- Capital account
- Financial account
Balance of payments - what is the current account?
It is made up of the imports and exports of a good and service (as well as income profit and interest on investment in assets abroad owned by a country’s residents and government transfers).
What is a current account deficit?
Value of imports exceeds the value of exports.
What is a current account surplus?
When the currency inflows exceed the currency outflows.
What happens when the value of one currency increases?
It is said to strengthen/ appreciate. Price rises.
What is the mnemonic for strengthening pound?
S - Strengthening
P - Pound
I - Imports
C - Cheaper
E - Exports
D - Dearer
What is the mnemonic for weakening pound?
W - Weakening
P - Pounds
I - Imports
D - Dearer
E - Exports
C - Cheaper
Who buys sterling?
- Currency speculators
- UK tourists returning home
- Foreign tourists travelling to UK
- Central banks
Who sells sterling?
- UK tourists travelling abroad
- Central banks
- UK firms importing from abroad
- Currency speculators
