Economic Influences - Exchange Rates 2.5.1
Exchange rate - is the price of one currency expressed in terms of another e.g. £1 = $1.65. This means that an American would need to pay $1.65 to buy each £... or, we would need to pay 61p to buy each $. Most exchange rates 'float', so their price (exchange rate) may go up or down. If the exchange rate goes down, there is depreciation . If it goes up, there is appreciation. Exchange rate of the £ What happens…? £ Rises ^ If the exchange rate of the pound changes from £1 = $1.75 to £1 = $2.00, the pound is said to be ‘stronger’ or has ‘risen’. The correct term is “ appreciation” . Each pound can now buy more dollars than it did before. £ Falls v If the exchange rate of the pound changes from £1 = $1.75 to £1 = $1.50, the pound is said to be ‘weaker’ or has ‘fallen’. The correct term is “dep...