In 1990–1991, the GBP/USD exchange rate reached a relatively high level of 2.000
ID: 2790308 • Letter: I
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? I need an answer that is different from the one on this site!
Explanation / Answer
The GBP/USD exchange rate is $2, that means for every GBP we would be receiving $2.
1. Travellers from the United States to Great Britain?
The travellers from US would be receiving lesser GBP for every dollar, because USD has weakened against GBP. Hence, travellers would not be benefited.
2. Travellers from Great Britain to the United States?
The travellers from Great Britain would be benefited, because GBP has strengthened against dollar. Hence, for every GBP they would be getting more dollars.
3. British import firms of U.S. goods from the United States in competitive industries?
Yes, the British importer would be benefited from importing goods from US because for every GBP they will be paying lesser dollar, as dollar has weakened against GBP.
4. A British car producer who competes with a U.S. manufacturer for domestic sales in the UK?
No, the British car producer would be in loss from exchange rate difference, because the consumers in UK would prefer US car at a lower rate due to decline in US Dollar against GBP.
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