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(a) Explain the term exchange rate - Leaving Cert Business - Question 7 - 2015
Question 7
(a) Explain the term exchange rate. This is the price of one currency expressed in terms of another currency. (b) Describe two possible risks which exchange rates ... show full transcript
Worked Solution & Example Answer:(a) Explain the term exchange rate - Leaving Cert Business - Question 7 - 2015
Step 1
Explain the term exchange rate.
Answer
The exchange rate is defined as the price at which one currency can be exchanged for another. This rate determines how much of one currency you would need to spend to purchase a unit of another currency. Exchange rates fluctuate due to factors such as interest rates, inflation, and economic stability.
Step 2
Describe two possible risks which exchange rates could present for businesses in Ireland:
Answer
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If the euro increases in value relative to the sterling (£), Irish exports become more expensive for foreign buyers, making them less competitive in the global market. This can lead to decreased sales and profits for Irish businesses.
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Conversely, if the euro decreases in value relative to the sterling (£), imports will become more expensive. This increases operational costs for businesses that rely on imported goods or raw materials, potentially forcing them to raise prices or cut into profit margins.