British Pound To Buy A Dollar

Introduction

Foreign currencies are traded with one another in a foreign exchange market. The price of one country’s currency depends on the exchange rate. Some currencies have higher exchange rates depending on the supply and demand. “For example, it may take $1.35 to buy 1 British Pound”; this means that it takes less British pound to buy a dollar. But, if the US increases the value of its dollar, the exchange rate would increase and it would cost more Pounds to buy a dollar. An increase in the exchange rate would affect the net exports. Higher exchange rates increase prices of the goods and services, the US products would be more expensive for the British consumer and these, in turn, would reduce the US Exports. The Exchange rates vary
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The high-interest rate would also increase the exchange rate creating a strong US currency. The strong currency would threaten the exchange rate of foreign currencies. A strong US currency would devaluate the weaker currencies (Kaletsky, 2015). It would also make it difficult for the emerging countries, for example, to repay their debts in dollar denominations. Moreover, it would hold back the economic growth of its nations because they would be not able to buy American manufactured goods such as engines, trucks, and machineries.

For decades, the US has maintained the interest rate near zero(“How do changes in national interest rates affect a currency’s value and exchange rate? ” 2015).This fact has not affected the exchange rate in relation to other nations, instead, the dollar is considered as the reserve currency for some countries where their economic and political situations are unstable. We can see that economic and political stability of the US is more important than high interest rates or exchange
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The increase of interest rate would appreciate the dollar value, making the US goods more expensive and less attractive for the UK, therefore the US net export would decrease. High-interest rates would attract more investment to the USA and that capital inflow would affect the exchange rate to appreciate; the increase of exchange rate reduces exports because the UK would need more British Pounds to buy USA goods and services. A strong dollar discourages exports and makes imports cheaper. For example, considering that 1.35 US dollar is worth 1 British Pound, a $10 calculator manufactured in the USA and exported to the UK would cost £7.41. But, now let’s suppose that $1 equals £1.20, the same $10 calculator would cost £12. When you consider this amount in terms of billions of dollars, the increase of interest rate would make the US products less competitive in relation to other countries. The UK would immediately find other trading partners with low-interest rates. Finally, the higher interest rate would also cause higher inflation which can “affect exports by having a direct impact on input costs such as materials and labor” (“Interesting facts about imports and exports,”

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