OCR ECONOMICS EXCHANGE RATES INFO

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  • Created on: 20-05-14 15:26
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The Impact of Exchange Rates ­ A Summary
Depreciation Appreciation
Direction of change Fall in the exchange rate Rise in the exchange rate
Exports
(a) Price: Cheaper More expensive
(b) Quantity: Likely to rise Likely to fall
Imports
(a) Price: More expensive Cheaper
(b) Quantity: Likely to fall Likely to rise
Balance of Payments Will improve if quantity Will deteriorate if quantity
changes sufficiently changes sufficiently
Consequences for Helps exporters Harms exporters
domestic economy Helps domestic firms Harms domestic firms
Harms domestic firms Helps domestic firms that
that rely on imports rely on imports
Boost in demand for Reduction in demand for
exports and domestic exports and domestic
goods will provide goods will depress
stimulus to economic economic growth and hence
growth and hence employment
employment Possible disinflationary
Possible inflationary consequences of cheaper
consequences of dearer imports
imports Reduced wage claims
Increased wage claims improving competitiveness
reducing of domestic firms
competitiveness of
domestic firms

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