Exchange rates (Money Markets) (A level Econ)

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The Demand for sterling: Sterling is demanded for several reasons:

to buy uk exports
foreign investment in the UK
speculation- traders on the foreign exchange markets.

AS THE EXCHANGE RATE RISES THE DEMAND FOR STERLING FALLS AND VICE-VERSA.

The Supply of Sterling: sterling is supplied for similar resaons:

to purchase foreign imports
UK investment abroad
speculation

AS THE EXCHANGE RATE RISES THE SUPPLY OF STERLING WILL ALSO RISE AND VICE-VERSA.

CHANGES IN THE EXCHANGE RATE. A fall in the exchange rate is known as depreciation. A rise in the exchange rate is known as an appreciation. CAUSES OF DEPRECIATION INCLUDE:

high uk inflation- the UK will sell less exports causing a fall in demand . The UK will buy more imports as they are cheaper than uk goods causing an increase in supply of sterling.
A fall in UK interest rates- Uk attrects less investors as its more expensive
speculation- traders lose confidence in the £ expecting it to fall in value

UK goods become less competitive- if foreingers no longer wish to buy UK products due to quality issues, changes in tastes etc. then the demand for sterling.

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