...

• What is an exchange rate?

  The price of one currency in terms of another
• Why are exchange rates important for businesses?

  They influence costs for imports and exports
• Who controls the exchange rate system in a country?

  The Central Bank of the country
• What happens when global demand for a currency rises?

  The currency appreciates in value
• If £1 = €1.18 increases to £1 = €1.25, what has happened to the currency?

  The currency has appreciated
• What occurs when global demand for a currency falls?

  The currency depreciates in value
• If £1 = €1.18 decreases to £1 = €1.05, what has happened to the currency?

  The currency has depreciated
• How do changing currency values impact businesses?

  They affect costs and sales revenue significantly
• What factors determine how businesses are affected by currency fluctuations?

  The volume of imports or exports and transaction countries
• How do exporting businesses generally benefit from currency depreciation?

  Products become cheaper compared to competitors
• How do importing businesses generally benefit from currency appreciation?

  Raw materials become cheaper from overseas
• What are the impacts of currency appreciation on exporting and importing businesses?

  • Appreciation Impact on Exporting Businesses:
  • Sales likely to fall due to higher prices
  • May lower prices and accept lower profit margins

  
  

  • Appreciation Impact on Importing Businesses:
  • Costs likely to fall as raw materials become cheaper
  • Can pass savings to customers or achieve higher profit margins
• What are the impacts of currency depreciation on exporting and importing businesses?

  • Depreciation Impact on Exporting Businesses:
  • Sales likely to rise as products become cheaper

  
  

  • Depreciation Impact on Importing Businesses:
  • Costs likely to rise as raw materials become more expensive
  • May seek domestic suppliers to reduce costs