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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.

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Presentation on theme: "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."— Presentation transcript:

1 Exchange Rates Terminology & impact on trade

2 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

3 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!

4 How will a rise in the exchange rate affect the current account? What about other aspects of the economy?

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