GCSE Business Studies Exchange Rates Lesson Aim Calculate

GCSE Business Studies Exchange Rates Lesson Aim Calculate the cost of goods in different currencies depending on the Exchange rate Explain and evaluate the effects of changes in exchange rates Explain how businesses respond to changes in the exchange rate

Starter • Name five different currencies

Exchange rate • This is the amount of a foreign currency that you get for a £ 1. A business will need to pay another business using the correct currency. So if an American business was buying a product from a British company it would need to pay in British Pounds. It will need to work out how much that would cost them in American dollars. The formula below shows how this is worked out: • Product price in £s x the currency per £ = price in $ • So if the exchange rate is £ 1 = $1. 50 and the price of the product is £ 100 you would do the following: • £ 100 x $1. 50 = $150 • This shows that the British seller would receive £ 100 but the American buyer would pay $150.

• Alternatively if a British business was buying a product from an American company it would need to pay in American dollars. It will need to work out how much that in British pounds. . The following formulas would apply: • Product price in $ ÷the dollars per £ = Price in £s to the UK buyer • So if the exchange rate is £ 1 = $1. 50 and the price of the product is $200 you would do the following: • $200 ÷ $1. 5 = £ 133. 33 • This shows that the British buyer will pay £ 133. 33 for the product and the American seller will receive $200. • A change in the exchange rate can affect a business in terms of what it can sell and buy

Calculate and explain a fall in the exchange rate Exchange rate Price of the export in £s £ 1 = € 1. 5 £ 500 £ 1 = € 1. 2 £ 500 Sum to Price in € to change the £ the UK buyer price to € Product price = € in £ x the euro per £ = =€ = Will the fall in the exchange rate above have helped British firms to export more products to countries that use the €?

Exchange rate Price of the import in € Sum to change Price in £s to the € price to £s British buyer £ 1 = € 1. 5 € 50 Product price in € ÷ € per £ = £ 1 = € 1. 2 € 50 =£ =£ = Will the fall in the exchange above have helped British firms who import from countries that use the €

• Stable exchange rate – the exchange rate between the different currencies stays much the same and a business can plan ahead knowing what price it will pay or receive for goods from abroad. • High exchange rate – these are a problem for exporters as they make the prices of the exports dearer for the buyer. It is good for importers because it makes the imports cheaper.