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SECTION 3 NATIONAL & GLOBAL ECONOMY National & Global Economy GCSE ECONOMICS: UNIT 11 3.2 Exchange Rates.

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Presentation on theme: "SECTION 3 NATIONAL & GLOBAL ECONOMY National & Global Economy GCSE ECONOMICS: UNIT 11 3.2 Exchange Rates."— Presentation transcript:

1 SECTION 3 NATIONAL & GLOBAL ECONOMY National & Global Economy GCSE ECONOMICS: UNIT 11 3.2 Exchange Rates

2 SECTION 3 NATIONAL & GLOBAL ECONOMY Aims of today’s lesson … Understand how exchange rates influence demand for imports and exports of goods and services Identify the non-price factors that affect the sales of imports to, and exports from the UK Analyse the effect that exchange rates have on the individual consumer

3 SECTION 3 NATIONAL & GLOBAL ECONOMY Talkabout….International Trade Imports BOP Globalisation Exports Deficit Surplus Goods Services

4 SECTION 3 NATIONAL & GLOBAL ECONOMY Exchange Rates Every time a UK citizen or business wants to buy something from abroad, they need to pay for that product in the currency where it is produced Example: When Helen buys original Ugg Boots from Australia and imports them to the UK she needs to buy Australian dollars to pay for them Q. What other reasons might a person require foreign currency for? $150

5 SECTION 3 NATIONAL & GLOBAL ECONOMY Exchange Rates cont… The amount a person has to pay for this foreign currency depends on the Exchange Rate This is the rate at which one currency (e.g. £’s) exchanges for another (e.g. €’s) Exchange rates change every day, so the foreign currency you could buy for £1 today may not be the same tomorrow The exchange rate, and the fact that it changes on a daily basis, has serious financial consequences for businesses and consumers

6 SECTION 3 NATIONAL & GLOBAL ECONOMY In October 2000 you could buy €1.75 for £1 In December 2008 the value of the pound had fallen, meaning that you could buy €1.14 for £1 How would this fall in the value of the pound (i.e. the exchange rate) affect importers of goods and services to the UK? The effects of the exchange rate on importers …

7 SECTION 3 NATIONAL & GLOBAL ECONOMY Exchange Rates cont… Example: Imagine you want to buy some perfume from France which is priced at €10 If the exchange rate means you get € 1 for every £1 then the perfume costs you £10 Q. If the exchange rate changes meaning you now only receive € 0.50 for every €1; how much will the perfume cost you in £’s? A.£20 Changes in the exchange rate therefore have huge consequences for what consumers can afford and want to buy (i.e. their demand for imports)

8 SECTION 3 NATIONAL & GLOBAL ECONOMY The effects of the exchange rate on exporters … When UK firms want to export their goods and services those foreign citizens who want them will have to buy pounds in order to pay for them Example 1: If the exchange rate is £1:$2, every pound they want to buy will cost $2 This means that for a good exported to the US for £10, a US citizen will need to pay $20 to buy the pounds necessary

9 SECTION 3 NATIONAL & GLOBAL ECONOMY Example 2: If the exchange rate changes to £1:$1, every pound they want to buy will cost $1 This means that for the same good exported to the US for £10, a US citizen will need now only need to pay $10 to buy the pounds necessary UK exports will therefore be more attractive to US citizens in the second example as they are half as expensive This is positive for UK exporters as they will sell more of their goods and services abroad The effects of the exchange rate on exporters …

10 SECTION 3 NATIONAL & GLOBAL ECONOMY Over to you… Open and complete the task below… 3.2 Exchange Rate Examples

11 SECTION 3 NATIONAL & GLOBAL ECONOMY Lets play the exchange game… Round 1: – Exchange rate is…

12 SECTION 3 NATIONAL & GLOBAL ECONOMY Case Study… Open and complete the task below… Case Study Example

13 SECTION 3 NATIONAL & GLOBAL ECONOMY Extension Tasks… Open and complete the task below… Extension Task 1 & 2


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