Business And The International Economy: The Impact Of Exchange Rate Changes (Copy)
Cheat Sheet: 6.3.3 Exchange Rate Changes
Key Terms
| Term | Definition | Example |
|---|---|---|
| Exchange Rate | Price of one currency in terms of another | $1 = £0.80 |
| Appreciation | Currency value rises compared to others | $1 = £0.80 → $1 = £0.90 |
| Depreciation | Currency value falls compared to others | $1 = £0.80 → $1 = £0.70 |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Impact on Exporters
| Change | Effect | Example |
|---|---|---|
| Appreciation | Exports more expensive abroad → less competitive | UK goods cost more in USA |
| Depreciation | Exports cheaper abroad → more competitive | Indian textiles cheaper in Europe |
Impact on Importers
| Change | Effect | Example |
|---|---|---|
| Appreciation | Imports cheaper → costs fall | UK firms import cheaper raw materials |
| Depreciation | Imports more expensive → costs rise | Pakistani firms pay more for imported oil |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Competitiveness & Profitability
| Situation | Impact |
|---|---|
| Appreciation | Reduces export demand, increases import demand; exporters lose profits, importers gain |
| Depreciation | Boosts export demand, raises import costs; exporters gain profits, importers lose |
Business Strategies to Cope
| Strategy | Explanation |
|---|---|
| Switch Suppliers | Importers may buy locally to avoid high foreign costs |
| Hedge Currency Risk | Use financial tools to lock exchange rates |
| Diversify Markets | Exporters spread sales to multiple countries |
| Adjust Prices | Absorb exchange rate change or pass cost to customers |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Quick Revision Bullets
- Appreciation = currency value ↑ → exports expensive, imports cheaper
- Depreciation = currency value ↓ → exports cheaper, imports expensive
- Exporters benefit from depreciation; importers benefit from appreciation
- Impacts competitiveness, costs, and profits
- Firms adapt via sourcing, hedging, diversifying, or pricing strategies
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course