Exchange Rates Flashcards
(15 cards)
What is an exchange rate
How much of one currency can be exchanged for another
What does an exchange rate diagram look like
Same as the supply and demand diagram but price of £s is on the y axis and quantity of £s is on the x axis
What are the two reasons for selling and supplying pounds
Tourism abroad
Imports - need to exchange currencies to import stuff from other countries
What is the demand for a currency decided by
Domestic tourism and foreign consumers demanding the currency of the country for exports
Explain what will happen to the British currency if the amount of tourists coming to Britain increases
Increase domestic tourism so the demand for pounds will shift to the left causing the price of pounds to increase
What is it called when a currency gets stronger or more expensive
An appreciation
What is it called when the value of a currency is decreasing
Depreciation
What happens to the value of the currency if the supply decreases
There will be an appreciation in the currency
What is speculation
When investors predict changes in an exchange rate to make a profit
What do investors do if they suspect an appreciation in a currency
They buy a lot of that currency and sell later when it’s at a higher price
What do investors do if they suspect a depreciation in the currency of an economy
Sell now and buy the currency at a lower price
What happens of the price of imports if the exchange rate appreciates
Imports will get cheaper
When the pound appreciates what will happen to the price of exports
They will become more expensive to foreigners
What happens to AD as the currency appreciates
AD will decrease as imports increase and exports decrease
What is the mnemonic for remembering the impact on exchange rates on imports and exports
SPICEE
Stronger Pound Imports Cheaper Exports Expensive
