Exchange Rate Flashcards

1
Q

SPICED

A
Strengthing 
Pound 
Imports 
Cheaper 
Exports 
Dearer
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2
Q

WPIDEC

A
Weakening 
Pound 
Imports 
Dearer 
Exports 
Cheaper
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3
Q

Exchange rate and the interest rate

A

A reduction in the interest rate will tend to reduce the exchange rate
This is because it will reduce the interest received on monies in UK bank accounts
There will be an outflow of money as from the UK as investors seek to gain better interests elsewhere
This means more of the currency is being sold which will increase the supply of the currency= reduced exchange rate

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4
Q

HOT MONEY

A

Money in bank accounts that is liable to rapid removal to other countries if the holders suspect that the urgency will depreciate

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5
Q

Exchange rates and net exports

A

A fall in the exchange rate, depreciation will lead to EXPORTS becoming CHEAPER and imports becoming dearer
This leads to an increase in net exports having a positive impact on aggregate demand
A ride in the exchange rate, appreciation, will lead to EXPORTS becoming DEARER and imports cheaper.
This leads to a decrease in net exports and will have a negative impact on aggregate demand

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6
Q

UK products are internationally competitive

A

Demand- high

Supply- low

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7
Q

Incomes are rising in other countries

A

Demand- high

Supply-low

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8
Q

Incomes are rising in the UK

A

Demand-low

Supply-high

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9
Q

Foreign companies want to invest in the UK (FDI)

A

Demand-high

Supply-low

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10
Q

Speculators want to take advantage of low £

A

Demand-high

Supply-low

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11
Q

Exchange rate

A

The price of one currency in term of another currency or currencies
Most countries exchange rates are determined by demand and supply; these are known as “floating” exchange rates
If demand for the currency increased, the exchange rate will increase
A rise in the exchange rate of a currency means that each unit of currency will buy more units if another currency
It also means that more units of the other currency will need to be paid to but the currency

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