Exchange Rates Flashcards
(14 cards)
What is an exchange rate?
The value of one currency to another.
What is a depreciation of a currency?
When the value of the currency falls relative to another currency in a floating exchange rate system.
What is a floating exchange rate system?
When a currency’s value is determined on the forces of supply and demand in the foreign exchange market.
What is a fixed exchange rate system?
When a currency’s value is set, fixed by a government or central bank.
Has the UK got a fixed or floating exchange rate system?
A flowing.
What is an example of a country with a fixed exchange rate?
The UAE dirham:
1USD = 3.67 dirhams
This was to provide stability between the oil trade.
What is an appreciation of a currency?
When the value of a currency increases.
What is devaluation of a currency?
When the value of the currecy is officially lowered in a fixed system.
What is revaluation of a currency?
When the value of a currency is adjusted relative to a baseline e.g the price of gold.
What does the acronym SPICED stand for?
Strong Pound Imports Cheaper Exports Dearer.
What does a depreciation of the pound do for UK exports?
They are cheaper and therefore become more competetive.
What does a depreciation of the pound do to price inelastic exports?
It will not significantly increase sales.
How does economic growth in other countries impact UK exports?
The more disposable income the population has, the higher consumer and firm confidence they will have, meaning they are more likely to purchase UK exports.
