Exchange rates MCQ 1

Questions and Answers

What happens to eurozone exports to the UK when the sterling weakens?

They become cheaper and demand increases

They are no longer exported to the UK

They become more expensive and demand falls (correct)

They remain unchanged and demand stays the same

What is the effect of a weakening sterling on UK imports to the eurozone?

They remain unchanged and demand stays the same

They become more expensive and demand falls

They are no longer imported to the eurozone

They become cheaper and demand rises (correct)

What happens to tourism to Ireland from the UK when the sterling weakens?

It remains unchanged as the sterling has no effect on tourism

It increases as it becomes cheaper for British tourists to visit Ireland

It becomes impossible for British tourists to visit Ireland

It decreases as it becomes more expensive for British tourists to visit Ireland (correct)

What is the effect of a weakening sterling on tourism to the UK from Ireland?

It increases as it becomes cheaper for Irish tourists to visit the UK Signup and view all the answers

What is the financial incentive for those living in the South of Ireland to travel to the North of Ireland?

To purchase items at a lower price due to the exchange rate Signup and view all the answers

What was the exchange rate for an Irish tourist traveling to the UK in early 2019?

€1.00 is equal to 90 pence Signup and view all the answers

What is the definition of the exchange rate?

The price of one currency in terms of another Signup and view all the answers

What is the primary motivation of currency speculators?

To make a profit by buying and selling currencies Signup and view all the answers

What would attract hot money from the eurozone to the US?

Higher interest rates in the US Signup and view all the answers

What is the effect of quantitative easing by the ECB on the euro?

The euro becomes cheaper Signup and view all the answers

What contributes to changes in exchange rates?

Currency speculation, interest rates, and quantitative easing Signup and view all the answers

Why do currency speculators buy and sell currencies?

To make a profit Signup and view all the answers

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.

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.