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The Interest Rate Transmission Mechanism

The Pound/Euro Exchange Rate

To ensure that you understand the relationship between the domestic price of a product and the export price as determined by the exchange rate, look at the example below, which represents trade between the UK and the eurozone.

How much would the buyer in the eurozone have to pay to buy the product from the UK seller?
Use your mouse cursor (or tab to the animation and use the a, b or c keys) to select the correct price. If correct the animation will start. You can stop/reset the animation by pressing q. The main introductory page features further accessibility information on these resources.


No Flash plugin detected: Animation would show the sale of a good from the UK to Europe at an exchange rate of £1 = €1.50. Animation would show the sale of a good from the UK to Europe at an exchange rate of £1 = €1.50. The good is sold to the European buyer who has to exchange euro to pounds to buy it. The exchange rate would mean that the price to the European buyer would be €7.50.

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