GCSE-ready- Home
- Lessons
- GCSE & IGCSE Business
- Exchange rates
Exchange rates
🎬 The doodle video for this lesson is coming soon. Subscribe on YouTube to see it first.
When businesses trade across borders, they must convert currencies. Changes in exchange rates can make them more or less competitive.
Exchange rate calculations
An exchange rate is the price of one currency in terms of another, such as £1 = US$1.30.
Pounds to dollars: multiply by the rate. £200 × 1.30 = $260.
Dollars to pounds: divide by the rate. $650 ÷ 1.30 = £500.
Pounds to dollars: multiply by the rate. £200 × 1.30 = $260.
Dollars to pounds: divide by the rate. $650 ÷ 1.30 = £500.
Appreciation and depreciation
Appreciation: a currency rises in value (£1 buys more dollars). Exports become dearer abroad; imports become cheaper.
Depreciation: a currency falls in value. Exports become cheaper abroad; imports become dearer.
Example: a £20 UK product costs $26 at £1 = $1.30, but $30 at £1 = $1.50.
Depreciation: a currency falls in value. Exports become cheaper abroad; imports become dearer.
Example: a £20 UK product costs $26 at £1 = $1.30, but $30 at £1 = $1.50.
Who gains?
A stronger currency helps importers (cheaper supplies) and hurts exporters (less competitive).
A weaker currency helps exporters and hurts importers.
This affects a business's international competitiveness.
A weaker currency helps exporters and hurts importers.
This affects a business's international competitiveness.
£1 = €1.20. A UK firm sells a jacket for £50. What is its price in euros?
- Multiply pounds by the rate
- 50 × 1.20
Answer: €60
Home to foreign currency: multiply by the rate. Foreign to home: divide. Appreciation makes exports dearer and imports cheaper; depreciation does the opposite.
Check you have got it
Answer 7 quick questions with instant marking. If you get one wrong, GCSE-ready shows you why and gives you another go. It is free, and you do not need an account.