Economics – International trade and globalisation - Foreign exchange rates | e-Consult
International trade and globalisation - Foreign exchange rates (1 questions)
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Strong economic growth in the UK leads to increased investment in UK assets, increasing the demand for pounds sterling. This is because investors need pounds to purchase UK assets like stocks, bonds, and property.
Increased demand for pounds sterling shifts the demand curve for GBP to the right. Assuming the supply of pounds remains constant (initially), this leads to an increase in the equilibrium exchange rate. Therefore, the pound sterling will appreciate against the US dollar. The new equilibrium exchange rate will be higher than £1 = \$1.50. For example, it might become £1 = \$1.60 or higher.