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Impact Of Changes In Exchange Rates

Impact Of Changes In Exchange Rates. Unit 1 Topic 1.5.3. Lesson Objectives. Must learn: the concept of exchange rates & how to calculate exchange rates Should learn: how exchange rates work and how they affect businesses and consumers

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Impact Of Changes In Exchange Rates

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  1. Impact Of Changes In Exchange Rates Unit 1 Topic 1.5.3

  2. Lesson Objectives • Must learn: the concept of exchange rates & how to calculate exchange rates • Should learn: how exchange rates work and how they affect businesses and consumers • Could learn: the impact of exchange rates on imports and exports

  3. Starter - Music download Sam wants to download some music from the Internet. He has spent a long time researching and has found three companies who seem to offer the best deals. One is based in the UK, one in the USA and one in Germany. These are the prices they are charging for registration: • Tunes unlimited [UK company] - £30 • EZiest download [USA company] - $50 • Musikwik [German company] - €50 He found out that the exchange rates were: £1 = $1.85 £1 = €1.45 Which would be the best deal for Sam?

  4. Starter - Music download Sam wants to download some music from the Internet. He has spent a long time researching and has found three companies who seem to offer the best deals. One is based in the UK, one in the USA and one in Germany. These are the prices they are charging for registration: Tunes unlimited [UK company] - £30 EZiest download [USA company] - $50 = 50/1.85 = £27.03 Musikwik [German company] - €50 He found out that the exchange rates were: £1 = $1.85 £1 = €1.45 Which would be the best deal for Sam?

  5. Starter - Music download Sam wants to download some music from the Internet. He has spent a long time researching and has found three companies who seem to offer the best deals. One is based in the UK, one in the USA and one in Germany. These are the prices they are charging for registration: Tunes unlimited [UK company] - £30 EZiest download [USA company] - $50 = 50/1.85 = £27.03 Musikwik [German company] - €50 = 50/1.45 = £34.48 He found out that the exchange rates were: £1 = $1.85 £1 = €1.45 Which would be the best deal for Sam?

  6. Starter - Music download Sam wants to download some music from the Internet. He has spent a long time researching and has found three companies who seem to offer the best deals. One is based in the UK, one in the USA and one in Germany. These are the prices they are charging for registration: Tunes unlimited [UK company] - £30 EZiest download [USA company] - $50 = 50/1.85 = £27.03 Musikwik [German company] - €50 = 50/1.45 = £34.48 He found out that the exchange rates were: £1 = $1.85 £1 = €1.45 Which would be the best deal for Sam?

  7. Exchange Rate

  8. What Determines Exchange Rates?

  9. How Exchange Rates Affect Businesses

  10. Exchange Rate – Market Data Live • http://www.bbc.co.uk/news/business/market_data/currency/default.stm

  11. Buy UK import businesses have to change pounds into foreign currencies to buy from suppliers Exchange rates • Sell • UK export businesses want paying in pounds. • Foreign customers will therefore have to change their currency into pounds to make the payment.

  12. £1 = US Dollar 1.97 Euro 1.52 Turkish Lira 2.76 Australian Dollar2.54 Japanese Yen239 Canadian Dollar2.33 Task 1 - Export A business sells exercise equipment to companies in a variety of different countries. Its cycling machine has a price in the UK of £250. How much the equipment would sell for in the following countries: • United States • Germany • Turkey • Australia • Japan • Canada

  13. Exchange rates Remember Rule • To change pounds into another currency, multiply by the rate. E.g. at £1 = €1.48, £50 changed into Euro would be 50 x 1.48 = €74.

  14. £1 = US Dollar 1.97 Euro 1.52 Turkish Lira 2.76 Australian Dollar2.54 Japanese Yen239 Canadian Dollar2.33 Task – Export Answers A business sells exercise equipment to companies in a variety of different countries. Its cycling machine has a price in the UK of £250. How much the equipment would sell for in the following countries: • United States = $492.50 • Germany = €380 • Turkey = 690 Lira • Australia = AUS$635 • Japan = 59750 Yen • Canada = Can$582.50

  15. £1 = Danish Kroner11.30 Mexican Peso21.52585 Indian Rupees 86.47 Taiwan Dollars 64.84 Task 2 - Import The same business buys in a number of parts for its exercise bicycle from different countries. Use the currency tables to calculate how much it will have to pay for the parts if they are priced in the home country as follows: • Denmark - Kr150 • Mexico - Peso 500 • India - Rupees 750 • Taiwan - Taiwan Dollars 690

  16. Exchange rates Remember Rule • To change a foreign currency back into pound, divide the sum by the rate. E.g. to change €90 into pounds, divide 90 by 1.48 = £60.81

  17. £1 = Danish Kroner11.30 Mexican Peso21.52585 Indian Rupees 86.47 Taiwan Dollars 64.84 Task – Imports Answers The same business buys in a number of parts for its exercise bicycle from different countries. Use the currency tables to calculate how much it will have to pay for the parts if they are priced in the home country as follows: • Denmark - £13.27 • Mexico - £23.23 • India - £8.67 • Taiwan - £10.64

  18. Imports & Exports Summary • For importers, the problem is when exchange rates fall. They can either up the price they have to charge customers or lower their profit margins. • For exporters, rising exchange rates may lead to a fall in the demand for their products and make it much harder for them to be able to compete in foreign markets.

  19. Mini Plenary -- Sports Shop Imports Trainers cost you €30 and you want to sell them for £40

  20. Mini Plenary -- Sports Shop Imports Trainers cost you €30 and you want to sell them for £40

  21. Mini Plenary -- Sports Shop Imports Trainers cost you €30 and you want to sell them for £40

  22. Mini Plenary -- Sports Shop Imports Trainers cost you €30 and you want to sell them for £40

  23. Changes in Exchange Rates A UK fruit wholesaler buys bananas from a supplier in Honduras. The Honduran seller wants to be paid in US dollars. A bunch of ten bananas is currently selling for $20 each. The exchange rate is currently £1 = $1.75. • Q1. How much does the UK buyer have to pay, in pounds, for each bunch of bananas? • The exchange rate between the pound and the dollar changes. The pound has appreciated against the dollar and is now standing at £1 = $1.80. • Q2. How much will a bunch of bananas now cost the UK importer? • Q3. Given your answer to the question above, what do you think might be the effect on the UK importer of the change in the exchange rate?

  24. Changes in Exchange Rates A UK fruit wholesaler buys bananas from a supplier in Honduras. The Honduran seller wants to be paid in US dollars. A bunch of ten bananas is currently selling for $20 each. The exchange rate is currently £1 = $1.75. • Q1. How much does the UK buyer have to pay, in pounds, for each bunch of bananas? £11.43 • The exchange rate between the pound and the dollar changes. The pound has appreciated against the dollar and is now standing at £1 = $1.80. • Q2. How much will a bunch of bananas now cost the UK importer? £11.11 • Q3. Given your answer to the question above, what do you think might be the effect on the UK importer of the change in the exchange rate? • Stronger £ reduces costs for the importer

  25. Summary Of Changes in Exchange Rates • The value of the UK pound against other currencies is called its exchange rate • Exporters prefer a weaker £ because it makes their products appear cheaper to foreign customers • Importers prefer a stronger £ because it lowers the price they have to pay suppliers

  26. Plenary

  27. Plenary

  28. Homework • Explain in detail the meaning of import and export and why is it affected by exchange rates (5 Marks)

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