In 1990–1991, the GBP/USD exchange rate reached a relatively high level of 2.000

Question

In 1990–1991, the GBP/USD exchange rate reached a relatively high level of 2.0000. At that exchange rate, 1 pound could be exchanged for $2.00. Which of the following groups would benefit from a high GBP/USD currency rate? Explain your position for each question. 1. Travelers from the United States to Great Britain? 2. Travelers from Great Britain to the United States? 3. British import firms of U.S. goods from the United States in competitive industries? 4. A British car producer who competes with a U.S. manufacturer for domestic sales in the UK?

Explanation / Answer

In 1990-1991, the GBP/USD = 2 and if the GBP/USD exchange rate is higher at 3, it means per dollar you will get 3 pounds and you have to pay 3 pounds to have a dollar. So,

1. Travelers from the United States to Great Britain will be benefits as it will get higher pounds in exchange of each dollar.

2. Travelers from Great Britain to the United States will be in loss as the traveler has to pay more pounds to have a dollar.

3. British import firms of U.S. goods from the United States in competitive industries will not be benefited and in loss as more pounds has to be paid to have a dollar to import and pay in dollars.

4. A British car producer who competes with a U.S. manufacturer for domestic sales in the UK, then the British car producer will not be benefited and in loss as US producer can sell its car at lower pounds rate in UK.

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