3.2 Exchange Rates

• Exchange Rate – how much of one currency you can buy using another currency.

• IE: £1 = $1.50

What does it mean if the £ is STRONG?• We can buy MORE of the foreign currency than before• IE: If in 2012 £1 = $1.50 and in 2013 £1 = $2.00 – This means we get MORE dollars for £1 than we did before.

• A strong pound means IMPORTS from other countries are CHEAPER for UK citizens.– IE: If something costs $30, it will cost us £20 in 2012 and £15

in 2013• A strong pound means UK EXPORTS to other countries

become more EXPENSIVE for foreign customers.– IE: If something costs £10, it will cost Americans $15 to buy

it in 2012 and $20 to buy it in 2013

What does it mean if the £ is WEAK?• We can’t buy as much of the foreign currency as

before• IE: If in 2012 £1 = $1.50 and in 2013 £1 = $1.00 – This means we get LESS dollars for £1 than we did before.

• A weak pound means IMPORTS from other countries are more EXPENSIVE for UK citizens.– IE: If something costs $30, it will cost us £20 in 2012 and

£30 in 2013• A weak pound means UK EXPORTS to other

countries become CHEAPER for foreign customers.– IE: If something costs £10, it will cost Americans $15 to

buy it in 2012 and $10 to buy it in 2013

How do changes in Exchange Rates affect us?

• Foreign holidays• Withdrawing cash from cash machines abroad• Food in supermarkets• Imported consumer goods