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UNIT 2: Topic 5 (5.3 Foreign currency and exchange rates (5.3.4 Where to…
UNIT 2: Topic 5
5.3 Foreign currency and exchange rates
An exchangerate is when you change one currency for another at a particular rate.
A strong pound means that you can get more of the different currency for a pound. It makes imports cheap and exports expensive
A weak pound means you get less of the currency for a pound. It makes imports expensive and exports cheap.
5.3.2 Why do we exchange currency?
An individual may exchange to go on holiday, buying a holiday home, sending money abroad.
5.3.4 Where to exchange
Bureaux de change
Banks and building societies
Credit cards
Debit cards
Specialist providers
5.1 Inflation
The general term for the increase in the price of goods or services overtime.
5.1.1 Consumer prices index (CPI)
This is how the government measures the rate of inflation.
It assesses the price of a 'typical basket of goods' and calculates the increase from the previous month in order to find an average for the year.
5.1.2 Inflation and personal budgets
Wages tend to increase at a higher rate than inflation up until recently due to global financial issues
High inflation means those on pensions and state benefits will suffer the mist as well as those who are saving.
Borrowers benefit as it reduces the capital value of their loan.
People have to spend more money to get the same product or services.
Businesses may find it difficult to plan with confidence
5.1.3 Controlling inflation
The government aims for 2% per year in terms of inflation.
When inflation is too high the government will raise interest rates,causing disposable income to reduce. It will also boost saving
When inflation is too low the interest rates are reduced to encourage borrowing and spending and reduce saving.
5.2 Interest rates
The cost of borrowing
5.2.2 Changing interest rates
The bank of england changes the base rate
The cost to banks/building societies of raising money
Lenders and deposit takers are commercial organisations that need to makeprofit
5.2.3 Interest-rate changes (borrowers)
Variable rate is when interest rate changes each time the lender changes their rates, this can be both good and bad
Fixed rate is when there is a set interest rate over the whole repayment period. This is more stable and less risky.
You can deal with high interest rates by arranging fixed rate loans, making changes to the budget and rearrange existing borrowing over long term.