3) Calculating Exchange Rates - MMT Flashcards
what is a currency?
a tangible form of money (e.g. notes and coins) used by a particular country
what is the UK’s currency?
the £ sterling
what is the exchange rate?
price of one currency in terms of another
what are the 2 basic ways of managing x-rates?
i) floating - price of currencies is determined by demand and supply for the currency on the FOREX
ii) fixed - where the central bank of the country pegs its currency at a certain rate against another currency and tries to ensure that the fixed rate is maintained over time
why will businesses require foreign currency ?
to pay for imports from abroad
what is an example of a business requiring foreign currency?
- if a UK business is importing wine or fruit from Italy the Italian businesses are likely to want payment in their currency, the Euro
- similarly, if morgan are exporting cars to Spain, they will prefer payment in £sterling
what is an example of households demanding foreign currencies?
to use on their holidays abroad
is a British tourist holidaying in Italy an export or import?
it’s an import for the UK, similar to a British supermarket importing wine from Italy
when converting currency you need to distinguish between the… currency and the … currency
- base
- foreign
what does DIME stand for?
- Divide for imports
- Multiply for exports
what does SPICED stand for?
Strong Pound, Imports Cheap, Exports Dear
What does WPIDEC stand for?
Weak Pound Imports Dear Exports Cheap
