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International Business 2: Businesses and Exchange Rates
What Do These Notes Cover?
To have a look at the mind map for this resource, please follow this link.
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In this resource, we will be looking at how businesses cope with trading abroad and especially how changes in exchange rates affect businesses who are involved in trade.
First we need to clarify some key terms and methods. In all the definitions below we will be assuming a UK perspective - i.e. businesses based in the UK and trading with other companies abroad (foreigners).
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Import - an import is the purchase of a good or service from a foreign business which leads to a flow of money out of the UK. The UK buyer will have to change pounds into the sellers currency to make the transaction.
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Export - an export is the sale of a good or service to a foreign buyer which leads to a flow of money into the UK. The foreign buyer will have to change their currency into pounds to complete the purchase.
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Exchange Rate - the exchange rate is the price of buying a foreign currency. It tells you how much of the foreign currency you will get for every pound or how many pounds you have to give up to acquire a foreign currency.
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In this article, we will be using two exchange rates - the pound against the US dollar and the pound against the Euro.
Pages in the Series
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