OxNotes > GCSE/IGCSE Revision > GCSE Economics > Exchange Rates
Simple explanation of Exchange Rate
The value of one currency for the purpose of conversion to another.
The exchange rate between two currencies specifies how much one currency is worth in terms of the other. So £1 may be worth $1.55 and €1.33. A currency that is getting stronger or appreciating is a currency that is going up in value against another. So £1:$1.5 moving to £1:$1.8 means the pound is getting stronger
A change in exchange rates might affect a business in the following ways:
Strong
Pound means
Imports will be
Cheap and
Exports will be
Expensive
(vice versa for weak pound)
E.g: An increase in the exchange rate (stronger pound) will mean that price abroad goes up, exports become more expensive for other countries to buy so it lowers sales; price of imported raw materials falls, either leading to a fall in price (which can help offset the cost of exporting) and more sales, or an increase in profits; competitors’ prices fall, meaning lower sales. More on this in the International Competitiveness section
The exchange rate between two currencies specifies how much one currency is worth in terms of the other. So £1 may be worth $1.55 and €1.33. A currency that is getting stronger or appreciating is a currency that is going up in value against another. So £1:$1.5 moving to £1:$1.8 means the pound is getting stronger
- A currency that is becoming weaker or depreciating is a currency that is going down in value against another. So £1:$1.8 moving to £1:$1.5 means the pound is getting weaker
A change in exchange rates might affect a business in the following ways:
- Exchange rates changes can increase or lower the price of a product sold abroad
- The price of imported raw materials may change
- The price of competitors’ products may change in the home market
Strong
Pound means
Imports will be
Cheap and
Exports will be
Expensive
(vice versa for weak pound)
E.g: An increase in the exchange rate (stronger pound) will mean that price abroad goes up, exports become more expensive for other countries to buy so it lowers sales; price of imported raw materials falls, either leading to a fall in price (which can help offset the cost of exporting) and more sales, or an increase in profits; competitors’ prices fall, meaning lower sales. More on this in the International Competitiveness section
Understand and illustrate how exchange rates are determined through the interaction of demand and supply
Topic
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