Business: exchange rates and international trade

Another term for a fall in the exchange rate is....

• Appreciation

• Inflation

• Depreciation

• Deflation

Answer explanation

When something depreciates it goes down in value.

What happens to the price of exports when the exchange rate falls?

• The price of exports rises

• The price of exports falls

• Prices stay the same

When the exchange rate rises what happens to the value of the currency against other currencies?

• It stays the same

• It goes up

• It goes down

When the exchange rate rises what happens to the demand for imports?

• It rises

• It falls

• It stays the same

Answer explanation

A rise in the exchange rate makes imports cheaper. So, demand increases.

What will be the impact of a fall in the exchange rate on a business that sells imported goods in its own country?

• None

• It will have to pay more for those goods

• It will pay less for those goods

Which of the following changes would help a business that aims to export most of the goods it produces?

• A rise in the exchange rate

• A fall in the exchange rate

• No change in the exchange rate

When the exchange rate changes from 1 GBP to $1.50 to 1 GBP to $2. What has happened to the value of the dollar against the pound?

• It has risen

• It has fallen

When the value of the dollar falls against the pound, which US businesses benefit?

• Businesses that import goods from the UK to sell in the USA

• Businesses that import components from the UK to put into their manufactured goods

• Businesses that export goods to the UK to sell there

• No US businesses benefit

Give one example of a business that will find it more difficult to prepare budgets when the exchange rate goes up and down a lot

• A business that operates completely inside one country

• A business that buys components from other countries and sells products in other countries

The pound-dollar exchange rate changes from 1 : 1.50 to 1 : 2.00. What will be the new US price of UK goods that were priced before at 150 dollars?

(a)