Exchange Rates – GCSE Business Studies Revision

Explain

  • Exchange rates show you how much a unit of one currency is worth compared with another
  • In the foreign exchange market, money is bought and sold like a commodity
  • The price for currency depends on its supply and demand
  • This is what affects the value of the pound (£)
  • The US Dollar ($), Euro and Japanese Yen are the most common currencies the UK deals with

Calculating It

  • To exchange from pounds to something else, multiply by the pounds by the exchange rate
  • When exchanging from foreign currency to pounds, divide the foreign currency by the exchange rate

Strength of the Pound

  • If the pound’s value is decreasing relative to other currencies, we say the pound is weak
  • If it’s increasing in relation to other currencies, the pound is strong
  • Having a strong pound makes it cheaper to buy things from overseas (import)
  • This is good for British customers because the imports seem good value
  • However, a strong pound is a disadvantage for British companies who are trying to compete with the foreign ones, because their products don’t seem as cheap
  • A weak pound has the opposite effect: it’s good for British companies but bad for customers

…or so the syllabus seems to say

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