1. Review 10.1
Exchange RATES

2. The value of once currency expressed in terms of another currency e.g.
£1= $1.50
How are they determined?
By the forces of supply and demand

3. Where is the demand of supply for £?
DEMAND SUPPLY
1. Exports Imports
2. Tourism Tourism
3. Interest Rates Interest Rates
4. Speculation Speculation
5. Investment Investment
Floating rates = left to market forces
Fixed rate= fixed by the central bank, it doesn’t change.

4. Exchange RATES, Interest & trade
Review 10.2
Exchange RATES, Interest & trade

5. Interest rates and exchange rates
UK rates up= £ up in value
UK rates down = £ down in value
If £ goes down in value- exports are cheaper and imports more expensive
Therefore good for B.O.P and bad for inflation
If £ goes up in value- exports more expensive and imports cheaper.
Therefore bad for B.O.P and good for inflation.