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3. (a) Explain what is meant by the term 'Exchange rate' - Leaving Cert Business - Question 3 - 2010
Question 3
3. (a) Explain what is meant by the term 'Exchange rate'. (b) Outline two impacts on Irish Exporters to the UK market, if the euro (€) increases in value relative... show full transcript
Worked Solution & Example Answer:3. (a) Explain what is meant by the term 'Exchange rate' - Leaving Cert Business - Question 3 - 2010
Step 1
Explain what is meant by the term 'Exchange rate'.
Answer
The exchange rate is defined as the price at which one currency can be exchanged for another. Specifically, it refers to the value of one currency in relation to the currency of another country. For example, if 1 euro is exchanged for 0.85 British pounds, the exchange rate is 0.85. This rate can fluctuate based on various economic factors, including interest rates, inflation, and overall economic stability.
Step 2
Outline two impacts on Irish Exporters to the UK market, if the euro (€) increases in value relative to the UK pound sterling (£).
Answer
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If the euro strengthens against the pound, Irish goods become more expensive for UK consumers. As a result, UK customers may seek cheaper alternatives, leading to a decrease in the demand for Irish products such as beef and other exports. This can significantly reduce profit margins for Irish exporters trying to maintain sales in the UK market.
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Additionally, the rising cost of Irish exports may force some exporters to reconsider their supply chains. Cheaper raw materials may be sourced from different markets, which could potentially lead to business closures for firms that rely heavily on exports to the UK, as their costs of goods sold become less competitive.