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Reading 6: Exchange rate fluctuations & plight of SMEs (Sterling…
Reading 6: Exchange rate fluctuations & plight of SMEs
Strong £
Exports more expensive
Good for importers
Weak £
Good for exporters
Imports more expensive
Many SMEs rely on key imported components
Primary Difficulties
Exchange rate fluctuations
Instability
Remedial Action
Quote in sterling & convert to customer's currency at time of contract
Pass on price increase to customers
Less competitive
Focus on domestic sales
Restrict exports
Sterling history
October 2000: £1 = E1.70
From 2002: depreciation against Euro
Mid-2003: £1 = E1.43
Appreciating against $
June 2001: £1 = $1.41
Feb 2004: £1 = $1.86
Nov 2007: £1 = $2.07
2008: many exports markets already in recession
£ plummeted
SMEs preferred to keep foreign currency prices the same and use the lower exchange rate to boost their earnings in sterling - earnings that were suffering from the domestic recession
2010: Sterling recovering - rose to $1.60 - affecting exports to USA
2009 to 2012: Sterling/Euro XR weak & fluctuating
Degree of stability since 2010
SMEs importing from EURO & exporting to USA had margins squeezed at both ends