Exchange Rates

• An exchange rate is the price of one currency expressed in terms of another currency
• The exchange rate determined how much of one currency has to be given up in order to buy a currency has to be given up in order to buy a specific amount of another country
• S - strong

  P - pound

  I - imports

  C - cheap

  E - exports

  D - dear
• W - weak

  P - pound

  I - imports

  D - dear

  E - exports

  C - cheap
• Ways that exchange rates impact business activity?


  Price of exports in international markets

  Cost of goods bought from overseas

  Revenues and profits earned overseas

  Converting cash receipts from customers overseas
• What might cause an increase in the exchange rate?


  Increasing demand for exports = higher demand for the currency

  Lower demand for imports = lower demand for the currency

  Speculation - traders may bet that the exchange rate will rise

  An increase in interest rates - making it more attractive to hold the currency

  Foreign direct investment into the country = higher demand for the currency
• Who are the winners of a lower exchange rates?


  Foreign buyers

  Businesses exporting into international markets

  Businesses earing substantial profits overseas
• Who are the losers from a lower exchange rate?


  Businesses importing goods and services

  Overseas businesses trying ti compete in domestic markets