7.5b - Exchange Rates

Question 1

Exchange rate definition

Answer 1

The value of one country’s currency in the terms another

Question 2

What happens to a currency’s value if demand increases?

Answer 2

The price will go up

Question 3

What does the effect on a business of exchange rates depend on?

Answer 3

• If it is an importer or exporter
• PED of the product
• If exchange rates are rising or falling

Question 4

If the exchange rate changes from £1 = $1.50 to £1 = $2 does it mean the pound is stronger or weaker?

Answer 4

Stronger (it can buy more $)

Question 5

For importers is a stronger pound a good or bad thing?

Answer 5

Good thing (product becomes cheaper)

Question 6

For exporters is a stronger pound a good or bad thing?

Answer 6

Bad thing (product is less competitively priced abroad)

Question 7

SPICED meaning

Answer 7

• Strong
• Pound
• Imports
• Cheaper
• Exports
• Dearer