Exchange Rate To be able to identify weak and strong currencies To understand the impact of a currencies strength on its balance of trade

The market for £’s At a high price e.g. £1=$2 the pound is strong since it is more expensive, investors sell pounds and demand cheaper imports. At a low price e.g. $1 = $0.75 the pound is weaker since it is comparatively cheaper and so investors sell fewer pounds and demand more exports.

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Activity Have you understood? 1.The pound depreciates in value from £1=1.7EURO to £1=____EURO? 2.If the pound appreciates in value, UK exports will________ and imports will_______. 3.When the pound is weak, this is________ for the UK balance of trade. 4.UK holiday makers want to go abroad when the pound is__________.

WEAK or STRONG??? Exchange rate £1 = $1.1 £1 = 0.97EURO £1 = 95Yen £1 = $2.6 $1 = £2 1EURO = £ Yen = £1 weak / strong £

IMPORT or EXPORT? Exchange Rate UK import more or Export more? £1 = $1.1 £1 = 0.97EURO £1 = 95Yen £1 = $2.6 $1 = £2 1EURO = £ Yen = £1

Questions Comment on how effectively a weak exchange rate helps the UK economy out of a recession. (8 marks) Describe the relationship between exchange rates and inflation. (4 marks) List 2 reasons why foreign currency is bought and 2 reasons why it is sold. (4 marks)