Exchange rates

What is the exchange rate ?

In a floating exchange rate system, the price is determined by .....

In a fixed system, the government ....

What is the equilibrium exchange rate ?

In a floating exchange rate system, an increase in the exchange rate is an .....
a fall is a

In a fixed exchange rate system, if the rate at which it is fixed is increased, this is called a ..
A lower rate is a

Define real exchange rate

The demand for pounds refers to

The pound is demanded to

The demand for the pound will increase if:
(3 marks)

If the pound falls, the price of UK goods and services in foreign currency ...
causing demand to

The more price elastic the demand for UK goods and services, the more ..... the demand for pounds

The supply of pounds (sterling) refers to the desire to

There may be a desire to change £ into other currencies in order to ...
( 3 marks )

If the UK exchange rate falls, then the price of imports in UK currency .....
This will ..... the amount of imports which are bought

The supply of pounds will increase (shift outwards) when :
( 3 marks )

What are the main advantages of a floating exchange rate system ?
( 5 marks )

What are the main disadvantages of a floating exchange rate system ?
( 2 marks )

How might the government influence the exchange rate ?
( 2 MARKS )

To decrease the exchange rate for the currency a government may :
(2 marks)

With a fixed exchange rate, the government intervenes to maintain the exchange rate. If the price of the currency is about to fall, the government may ....... by buying its own currency using ......, or increasing ......

If the price of the currency is about to increase, the government may ..... its own currency or ..... interest rates

What are the main advantages of fixed exchange rates ?
( 2 marks )

Disadvantages of fixed exchange rates
2 marks

If the exchange rate is fixed above the equilibrium rate, there will be ..... supply of the currency, causing a balance of payments .....

If the price is fixed below the equilibrium, there is ....... demand for the currency, meaning that there is a balance of payments ......

If there is a current account deficit, there must be a ..... on the capital and financial accounts
Why ?

What may be done to reduce a balance of payments current account surplus ?
( 3 marks )

How can the government improve the UK's international competitiveness ?
( 5 marks )