Fig. 1 is an exchange-rate board used by a currency bureau in Britain. A British importer has received an invoice for US$12 500 for machine parts from a US ...
Question 1 Report
Fig. 1 is an exchange-rate board used by a currency bureau in Britain. A British importer has received an invoice for US$12 500 for machine parts from a US supplier. The business must pay the invoice today.
(a) Calculate the cost of the invoice in pounds sterling. Show your working. [2]
(b) State two ways a change in the exchange rate could affect the cost of future imports for this business. [2]
Answer Details
(a) The board gives £0.80 for each US$1, so multiply the dollar invoice by £0.80:
\[\text{US}\$12\,500\times\pounds0.80=\pounds10\,000\]
The invoice costs £10 000 [2].
(b) If the pound weakens against the US dollar, the business needs more pounds to buy the dollars needed for imports [1]. If the pound strengthens, imports cost fewer pounds [1]. Exchange-rate changes can therefore make pricing and budgeting more uncertain.
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