Questions and Answers
What happens to eurozone exports to the UK when the sterling weakens?
What is the effect of a weakening sterling on UK imports to the eurozone?
What happens to tourism to Ireland from the UK when the sterling weakens?
What is the effect of a weakening sterling on tourism to the UK from Ireland?
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What is the financial incentive for those living in the South of Ireland to travel to the North of Ireland?
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What was the exchange rate for an Irish tourist traveling to the UK in early 2019?
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What is the definition of the exchange rate?
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What is the primary motivation of currency speculators?
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What would attract hot money from the eurozone to the US?
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What is the effect of quantitative easing by the ECB on the euro?
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What contributes to changes in exchange rates?
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Why do currency speculators buy and sell currencies?
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Study Notes
Implications of a Weakening Sterling on the Irish Economy
- A weakening sterling leads to a decline in eurozone exports to the UK, as they become more expensive, resulting in reduced demand.
- Conversely, UK imports to the eurozone increase, as goods from the UK become cheaper, leading to higher demand.
Impact on Tourism
- The weakening sterling makes it more expensive for British tourists to visit Ireland and other European countries, resulting in a decrease in British tourists visiting Ireland.
- In contrast, it becomes cheaper for Irish and other eurozone tourists to visit the UK, leading to an increase in tourism to the UK.
Cross-Border Shopping
- A weakening sterling creates a financial incentive for those living in the South of Ireland to travel to the North of Ireland to purchase items.
Foreign Exchange and Exchange Rates
- The exchange rate is the price of one currency in terms of another.
- In early 2019, the exchange rate for an Irish tourist traveling to the UK was €1.00 = 90 pence.
- In early 2019, the exchange rate for a British tourist traveling to the eurozone was 1 British pound = €1.11.
Factors Affecting Exchange Rates
- Currency speculation contributes to changes in exchange rates as speculators buy and sell currencies to make a profit, influencing demand and supply.
Interest Rates and Exchange Rates
- Higher interest rates in a country, such as the US, compared to another, like the eurozone, attract money flows from the latter to the former, impacting exchange rates.
- Hot Money: Capital that moves between financial institutions to take advantage of higher interest rates.
Quantitative Easing and Exchange Rates
- Quantitative easing by a central bank, such as the ECB, increases the money supply, making the currency (e.g., EUR) cheaper and affecting exchange rates.
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Description
This quiz assesses the effects of a weakening British sterling on the Irish economy, including its influence on exports, imports, and tourism. It covers the consequences of a devalued sterling on trade and travel between Ireland and the UK.