Exchange Rates Terminology & impact on trade
The ‘Exchange Rate’ Measures the value of one currency in terms of how much of another currency it can buy Eg. £1 = $1.52 USD Eg. £1 = €1.35
The exchange rates changes… Appreciates £1 = $1.52 USD (yesterday) £1 = $1.55 USD (today) Depreciates £1 = €1.35 (yesterday) £ = €1.31 (today) The value of the currency is determined by the forces of supply and demand – more about this in your Theme 1 work!
How will a rise in the exchange rate affect the current account? What about other aspects of the economy?