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Flashcards in Exchange Rates Deck (5)
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1
Q

What is a fixed exchange rate? (3)

A
  • pegged to another currency or gold

- set by the government/ central bank

2
Q

What is a floating exchange rate? (2)

A
  • exchange rate varies

- according to market forces

3
Q

Four economic factors which could lead to depreciation of sterling (4)

A
  • decreasing UK interest rates in comparison to other countries
  • decreasing productivity
  • increasing money supply faster than productivity
  • higher relative inflation than other countries
  • current account deficit
  • capital account surplus
4
Q

Effect of exchange rate deprecation of sterling on exporters e.g UK car manufacturer selling cars in China (4)

A
  • price of goods sold abroad would be cheaper in local currency terms
  • making the exporter more competitive
  • increasing sales
  • profits increase
  • potential share price increase
  • downside, increased cost of imported raw materials
5
Q

Impact if depreciation in value of sterling on UK inflation? (3)

A
  • inflation would rise
  • imports become more expensive
  • more exports