Changes in exchange rates

• How does the economic climate impact businesses?

  It affects prices, investment, and employment levels
• What does the exchange rate represent?

  Price of one currency in terms of another
• What determines the value of a currency?

  Supply and demand for that currency
• If £1.00 equals €1.13, what does £2.00 equal?

  €2.26
• Why are exchange rates important for businesses?

  They affect transportation and sale of goods
• How does globalization affect businesses regarding exchange rates?

  It increases the number of businesses trading overseas
• What happens if the pound appreciates?

  More foreign currency can be purchased
• If £1 = US $1.20 changes to £1 = US $1.25, what is this called?

  Appreciation of the pound
• What does depreciation of the pound mean?

  Less foreign currency can be obtained
• How does a fall in the pound's value affect UK exporters?

  They benefit as overseas firms pay less
• What happens to UK firms that import raw materials when the pound depreciates?

  They pay more pounds for foreign currency
• What is the price of an item priced at US $25.00 with an exchange rate of £1.00 = US $1.25?

  £20.00
• What acronyms help remember the effects of exchange rate changes?

  • SPICED
  • WPIDEC
• What does SPICED stand for?

  • Strong Pound makes Imports Cheaper
  • Exports Dearer
• What does WPIDEC stand for?

  • Weak Pound makes Imports Dearer
  • Exports Cheaper
• How do SPICED and WPIDEC relate to exchange rates?

  • SPICED: Strong pound impacts imports and exports
  • WPIDEC: Weak pound impacts imports and exports