exchange rates

sterling-90-10

Real effective exchange rate

The real effective exchange rate measures the value of a currency against a basket of other currencies; it takes into account changes in relative prices and shows what can actually be bought. Nominal exchange rate The nominal exchange rate measures the current value of a currency against another. For example, in Sept 2014 £1 – $1.61 or $1 = £0.62 Effective exchange rate The effective exchange rate measures a currency against a basked of other currencies. This is usually trade-weighted. When looking at the effective…

The effects of an appreciation

The effects of an appreciation

An appreciation means an increase in the value of a currency. It means a currency is worth more in terms of foreign currency. A example of an appreciation in the value of the Pound 2009 – 2012 Jan 2009  If £1 = €1.1 June 2012 £1 = €1.27 In this case we can say there was a 15% appreciation in the value of the Pound against the Euro – between Jan 2009 and June 2012   Effects of an appreciation on the UK…

What happens to value of currency during recession?

What happens to value of currency during recession?

Readers Question: What will happen to the value of a currency during times of deep recession and high inflation? There is no hard and fast rule about what will happen to the value of a currency during a deep recession. For example, when the great recession started in 2008, the UK experienced a significant depreciation. The Pound Sterling fell nearly 20% from 2007 (before the start of the great recession) to July 2009 But the Euro and Dollar were less affected by the…

Does a devaluation really help the economy?

Does a devaluation really help the economy?

Recently, we looked at whether a strong currency would help the economy – Is a strong currency a good thing? The other side of the equation is – to what extent will a devaluation will help an economy? Commentators frequently write that devaluation (1) should help ‘rebalance’ the economy and help create an export led recovery. But, since 2008, we’ve seen a 25-30% devaluation in Sterling and we are left with only very weak recovery, cost push inflation and a surprisingly large current account deficit. It seems the depreciation…

Is a strong currency a good thing?

Is a strong currency a good thing?

Readers Comment from post: Should the UK join the Eurozone So now it is 2013. Britain has spent a number of years with it’s interest rate set at just about zero, has entered a triple recession, has lost it’s AAA credit rating and Sterling is only worth €1.15 a drop of over 30% against the Euro. So for those who still cannot see the wood for the trees and still believe the “anti-euro” propaganda wake up and smell the coffee. I will put it this…

Forecast for Pound Sterling in 2013

Forecast for Pound Sterling in 2013

A look at the future prospects for the Pound in the coming months of 2013. The Sterling index measures the value of the Pound Sterling against a basket of trade weighted currencies. In  Dec 2011 the index was 80.4 By Oct 2011, the exchange rate index has increased to 83.6 This modest appreciation in the Pound has occurred despite: Double dip recession in UK UK Inflation remaining above target Growing current account deficit Quantitative easing increasing money supply. One of largest budget deficits in OECD Therefore…

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Australian and New Zealand Dollar

Readers Question: Part A ii) On 1 July, AUD1 = NZD 1.10. On 1 August, AUD1 = NZD 1.15. On 1 July, your aunt in New Zealand booked the accommodation your families will stay in when you have a family reunion in Melbourne in August. She expects this to cost NZD 5400 when she pays the bill on August 1. You agreed to cover the costs she might incur if any exchange rate fluctuations took place between these dates. Will you have to help out? How much will you have to pay? Again…

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Australian Dollar and British Pound

Readers Question:. (i) On 1 March, AUD1 = GBP 0.42. On 1 July, AUD1 = GBP 0.45. Your company exports native flowers to British florists. You signed a contract on March 1 to sell 10 tonnes of flowers at AUD 385 per tonne, to be delivered on July 1. Explain how the exchange rate movement between the two dates impacts on the Australian seller. On 1July the Australian Dollar has appreciated against the British Pound. 1 Australian dollar now gets 0.45 GBP rather than 0.42. This means British companies will have to pay…