Q&A - What is an exchange rate?

An exchange rate is the price of one currency expressed in terms of another currency.

The exchange rate determines how much of one currency has to be given up in order to buy a specific amount of another currency.

For example, look at the exchange rates in the following table:

In the table above, you can see that in May, £1 would buy $1.60, if you wanted to convert some pounds into US dollars.  Alternatively, £1 would buy €1.15 euro.

Exchange rates change constantly as currencies are bought and sold (traded) on the global currency markets.  Let any commodity, a currency has a value or price expressed in terms of what it could buy – that is the exchange rate.

Look at the table and see what happened to the exchange rate for the pound between May and September.

The value of £1 fell against both the US dollar and the Euro.  For example, by September, £1 would only buy you $1.45, a fall of $0.15 from May.

That means that the pound weakened against the dollar (and the euro).

Putting it another way, the value of the US dollar strengthened against the pound. If you were holding dollars, you would need less of them to convert into £1.

Revision Presentation - Marketing Mix: Introduction to Pricing [17 May 2012]
Economics for Business: Is an economic recovery underway? [28 Feb 2012]
Crisps and exchange rates [27 Dec 2011]
International operations decisions - Adidas trainers for $1? [26 Nov 2011]
Cut price cup cake deal goes wrong…... [22 Nov 2011]
Evan Davis ‘Made in Britain’ - and a new trade data tool to play with [21 Jun 2011]
An end to outsourcing? [18 May 2011]
The UK Economy - Exchange Rates [14 Mar 2011]
Revision games - Marketing Basics (True / False) [16 Feb 2011]
British exports - what does the government do to help? [10 Feb 2011]
Q&A - Distinguish between price and cost [2 Jan 2011]
Q&A - Should a business use a “loss leader” as part of its pricing tactics? [31 Dec 2010]
Segmentation & Pricing - the Ice-Cream Price Pyramid [17 Nov 2010]
Cash flow Clue-doh! The Mystery is Revealed… [2 Nov 2010]
Making the FT Brand Sweat! [19 Oct 2010]
Pricing Strategy - Mobile Data Networks [14 Sep 2010]
Lessons from the business model of King & Allen [13 Jul 2010]
Rising industrial unrest in China [29 Jun 2010]
Emerging from Recession - Manufacturing Leads the Way [1 Jun 2010]
Corus chief calls for more government funds for the economy [8 Apr 2010]
BUSS4 and British Airways - a marriage made in heaven [1 Mar 2010]
Taking Demand-based Pricing To Extremes [8 Feb 2010]
Video case study - substitute goods benefiting from the recession [1 Feb 2010]
What business students can learn from how businesses have handled the recession [1 Feb 2010]
Product, pricing and profitability in a changing market [20 Jan 2010]
Revision Presentation - Revenues and Demand [30 Dec 2009]
Q&A - When is it appropriate for a firm to use penetration pricing? [21 Dec 2009]
Q&A - Explain price skimming [21 Dec 2009]
Q&A - What is the difference between pricing strategies & tactics? [21 Dec 2009]
Q&A - Explain what is meant by price positioning [21 Dec 2009]
Q&A - What factors should a business consider when setting its prices? [19 Dec 2009]
Q&A - How does pricing link to the objectives of a business? [19 Dec 2009]
Q&A - What is price and why is it so important in the marketing mix? [19 Dec 2009]
A tale of two bakers [16 Nov 2009]
Emerging markets drive demand for oil [16 Nov 2009]
Santa goes back to basics in attempt to reduce the cost of Christmas [29 Oct 2009]
Q&A - Does globalisation benefit UK businesses and the UK economy? [27 Oct 2009]
Q&A - What are the main factors driving globalisation? [27 Oct 2009]
Q&A - What is globalisation? [27 Oct 2009]
Q&A - How are businesses affected by unemployment? [27 Oct 2009]
Pricing strategies and tactics under investigation [15 Oct 2009]
Dyson launches a new premium product [14 Oct 2009]
Ukraine 1 England 0 - A match to remember? [12 Oct 2009]
Napster - Trying to compete, or getting desperate? [9 Oct 2009]
V-Water - from start up to exit [4 Oct 2009]
The lights go out for the nightclub market [26 Sep 2009]
Sony cuts the PS3 price to extend its life cycle [30 Aug 2009]
More trouble in the skies [27 Aug 2009]
Sainsbury’s and Diageo pitch in to battle [17 Aug 2009]
Own label brands profit from the recession [4 Aug 2009]
Demand and supply in action - tea prices surge [4 Aug 2009]
The Death of Newspapers - to be replaced by Nichepapers? [2 Aug 2009]
Fantasy Football hit by the weakness of sterling [17 Jul 2009]
Instore Takes a Pounding [6 Jul 2009]
Swimsuit malfunction - a failure of quality or just the wrong size? [2 Jul 2009]
U2 on Tour - Investment appraisal and capacity utilisation rolled into one! [2 Jul 2009]
Q&A - Outline the main costs and benefits of inflation [1 Jul 2009]
Q&A - Explain the causes of inflation [1 Jul 2009]
Q&A - What is inflation and how is it measured? [1 Jul 2009]
East Coast Rail Line is Nationalised [1 Jul 2009]
Recession Bites - new food shopping habits [29 Jun 2009]
Budget Hotel Chain Now Feeling the Squeeze [17 Jun 2009]
Milk co-operative turns sour [4 Jun 2009]
How to improve a profit margin through a hidden price increase - the Snickers way [4 Jun 2009]
Video case study - Rebranding acquisitions [1 Jun 2009]
Video case study - EU legislation impact on business [28 May 2009]
Q&A - Why are start-ups vulnerable to cash flow problems? [26 May 2009]
Video case study - football shirt sponsorship under pressure [25 May 2009]
BA posts a record loss [22 May 2009]
Q&A - What is meant by Social Enterprise? [22 May 2009]
Video case study - the effect of deflation on businesses [19 May 2009]
Motivating employees - the end of the mobile phone sales shark? [17 May 2009]
AQA AS Business Unit 1 - Possible Evaluation Questions [17 May 2009]
A booming rental market – for car parking spaces [12 May 2009]
Q&A - What is the link between product differentiation and a USP? [1 May 2009]
Q&A - How do changes in commodity prices affect businesses? [1 May 2009]
Q&A - What are the main legal areas that a start-up business needs to consider? [1 May 2009]
Q&A - What are commodities and how are their prices determined? [1 May 2009]
Q&A - What is market supply [1 May 2009]
Q&A - What is market demand? [1 May 2009]
Q&A - Describe the basics of setting up a business in the UK [1 May 2009]
Q&A - What are the implications for UK businesses if the pound strengthens? [1 May 2009]
Q&A - What causes an exchange rate to change? [1 May 2009]
Q&A - How are businesses affected by changes in interest rates? [1 May 2009]
Q&A - What is credit and why do businesses need it? [1 May 2009]
Q&A - What goes into the “marketing mix”? [1 May 2009]
Q&A - What is a sole trader? [1 May 2009]
How can the same product be cheaper to buy new than second-hand? [16 Apr 2009]
OCR 2880 (ACE) - Charging for Cargo [12 Apr 2009]
Demand and supply in action - oil [11 Apr 2009]
Viability of wind farms poses a “sources of finance” challenge [9 Apr 2009]
Price war looms for music downloads [8 Apr 2009]
Are we motoring towards electric avenue? [5 Apr 2009]
Video case study - biofuel farmers feel the pressure [4 Apr 2009]
Customer Service and Capacity Utilsation: Stenna Line versus Ryanair [3 Apr 2009]
The never-ending sales promotion proves a winner [28 Mar 2009]
Flight to value at Waitrose [15 Mar 2009]
Hotels feel the squeeze from low capacity utilisation and pricing [9 Mar 2009]
CelebAir - Price Elasticity of Demand Exercise [7 Mar 2009]
Revision Quiz - Price Elasticity of Demand [7 Mar 2009]

BUSINESS TEACHER RESOURCE NEWSLETTER
Get first news of business teaching resources, ideas and other materials from tutor2u. Over 9,400 business teachers from the UK and around the world receive our regular teacher email newsletters. Sign up for free here!