Goods and services are sold to foreigners who have to
buy ús in order to purchase them. Imports
occur when UK residents buy goods and services from abroad.
The Effect of Exchange Rates
value of exchange rates affect the demand for exports and imports.
An appreciation of the pound (pound becomes stronger) will lead to
exports becoming more expensive and imports cheaper.
This will harm exporters and increase the leakages from the circular
flow of income. Were the pound to depreciate the opposite effect would occur. In order to avoid confusion remember SPICED!
economic effects of changes in exchange rates take time to occur, this is due
to time lags between a change in the pound and changes in the balance of
last major depreciation in the value of sterling came in the early-mid 1990s
following sterling's departure from the exchange rate mechanism. The pound
was devalued by nearly 15% against a range of currencies in September 1992
and continued to drift lower in value for the next three years.