1. National & Global Economy
GCSE ECONOMICS: UNIT 11
National & Global Economy
3.2 Exchange Rates

2. Aims of today’s lesson …
Understand how exchange rates influence demand for imports and exports of goods and services
Identify the non-price factors that affect the sales of imports to, and exports from the UK
Analyse the effect that exchange rates have on the individual consumer

3. Talkabout….International Trade
Exports
Imports
Deficit
BOP
Surplus
Globalisation
Imports: Imports (M) are the goods and services the UK buys from other countries
Exports: Exports (X) are goods and services that the UK sells to buyers in foreign countries e.g. Jaguar cars
Balance of payments: a record of the value of a country’s exports, imports and financial transactions with the rest of the world over a year
International Trade: International trade is the exchange of capital, goods, and services across international borders or territories
Globalisation: Globalization is the tendency of businesses, technologies, or philosophies to spread throughout the world, or the process of making this happen
Deficit:
Surplus:
Services
Goods

4. Exchange Rates
Every time a UK citizen or business wants to buy something from abroad, they need to pay for that product in the currency where it is produced
Example:
When Helen buys original Ugg Boots from Australia and imports them to the UK she needs to buy Australian dollars to pay for them
Q. What other reasons might a person require foreign currency for?
$150
A. More common purchases include buying foreign currency for a holiday or large consumer purchases such as a car

5. Exchange Rates cont…
The amount a person has to pay for this foreign currency depends on the Exchange Rate
This is the rate at which one currency (e.g. £’s) exchanges for another (e.g. €’s)
Exchange rates change every day, so the foreign currency you could buy for £1 today may not be the same tomorrow
The exchange rate, and the fact that it changes on a daily basis, has serious financial consequences for businesses and consumers

6. The effects of the exchange rate on importers…
In October 2000 you could buy €1.75 for £1
In December 2008 the value of the pound had fallen, meaning that you could buy €1.14 for £1
How would this fall in the value of the pound (i.e. the exchange rate) affect importers of goods and services to the UK?

7. Exchange Rates cont…
Example: Imagine you want to buy some perfume from France which is priced at €10
If the exchange rate means you get € 1 for every £1 then the perfume costs you £10
Q. If the exchange rate changes meaning you now only receive € 0.50 for every €1; how much will the perfume cost you in £’s?
£20
Changes in the exchange rate therefore have huge consequences for what consumers can afford and want to buy (i.e. their demand for imports)

8. The effects of the exchange rate on exporters…
When UK firms want to export their goods and services those foreign citizens who want them will have to buy pounds in order to pay for them
Example 1: If the exchange rate is £1:$2, every pound they want to buy will cost $2
This means that for a good exported to the US for £10, a US citizen will need to pay $20 to buy the pounds necessary

9. The effects of the exchange rate on exporters…
Example 2: If the exchange rate changes to £1:$1, every pound they want to buy will cost $1
This means that for the same good exported to the US for £10, a US citizen will need now only need to pay $10 to buy the pounds necessary
UK exports will therefore be more attractive to US citizens in the second example as they are half as expensive
This is positive for UK exporters as they will sell more of their goods and services abroad

10. 3.2 Exchange Rate Examples
Over to you…
Open and complete the task below…
3.2 Exchange Rate Examples

11. Lets play the exchange game…
Round 1:
Exchange rate is…

12. Case Study… Open and complete the task below… Case Study Example
The case study prepares students for exam type questions

13. Extension Tasks… Open and complete the task below…