Exchange Rate Impact
How the value of the pound changes what businesses pay and earn abroad: a weak pound helps exporters and raises import costs, while a strong pound helps importers and makes exports dearer.
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Free interactive practice at using the material, which is what the marks are for.
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When the pound moves
The value of the pound against other currencies is always changing, and that matters a lot to businesses that trade abroad. A firm that sells overseas and a firm that buys from overseas feel a change in opposite ways. This module works through what a weak and a strong pound mean, and which businesses each one helps or hurts.
Currency words to know
Learn these before you follow the pound.
Weak pound against strong pound
The same firm is affected in opposite ways depending on which way the pound moves.
Judge which way it helps
In the exam, you are not asked to convert money, only which way the change helps. A weak pound makes British products seem better value to overseas buyers, so exporters usually sell more, while goods shipped in from abroad cost the buyer more; a strong pound flips this around. A memory aid is SPICED: a Strong Pound means Imports Cheaper and Exports Dearer. Name whether the firm imports or exports, then say whether the change helps or hurts it.
Match the term
- exchange rate
- exporter
- importer
- weak pound
- how much of one currency you get for another
- a business that sells goods abroad
- a business that buys goods from abroad
- a pound that buys less foreign currency
Match the effect
- a weak pound for an exporter
- a weak pound for an importer
- a strong pound for an exporter
- a strong pound for an importer
- sells more, as its goods look cheaper abroad
- pays more for the goods it buys in
- sells less, as its goods look dearer abroad
- pays less for the goods it buys in
Who gains from a weak pound?
A weaker pound is generally good news for which kind of business?
- An exporter
- An importer
- A charity
- A high-street bank
True about exchange rates
Select the TWO true statements about exchange rates.
- A weak pound makes UK exports cheaper for foreign buyers
- A strong pound makes imports cheaper for UK buyers
- A weak pound makes imports cheaper as well
- Exchange rates have no effect on trade
Work out the extra profit
After the pound weakens, an exporter sells 200 more units, each earning 30 pounds of profit. Multiply the extra units by the profit per unit to find the extra profit in pounds. What is the answer?
Order the export effect
Put the chain of effects for an exporter in order after the pound weakens, earliest first.
- The pound falls in value against other currencies
- UK goods become cheaper for foreign buyers
- Foreign customers buy more UK exports
- The UK exporter sells more and earns more
Complete the rules
The price of one currency in terms of another is the _____ rate. A business that sells goods abroad is an _____. When the pound is weak, UK exports become _____ for foreign buyers, while imports become _____ for UK buyers.
Spot the weak-pound effects
Tap the TWO effects of a weak pound.
- UK exports become cheaper abroad
- imported goods cost UK firms more
- UK exports become dearer abroad
- imported goods become cheaper
Judge the impact
Read each case and choose the best answer.
- The pound falls in value. What happens to the price of UK goods for foreign buyers?
- A UK firm imports its raw materials from abroad, and the pound weakens. What happens to its costs?
- Which business gains most from a strong pound?
Explain exchange rate impact
Explain how a change in the exchange rate affects importing and exporting businesses.
- Explain what a weak pound and a strong pound mean
- Explain how a weak pound affects an exporter and an importer
- Explain how a strong pound affects an exporter and an importer