Global competitiveness

Overview

How exchange rate movements and volatility change competitiveness, forward contracts, cost competitiveness against differentiation as routes to advantage abroad, and the effects of skill shortages and how businesses respond to them.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   When a domestic currency appreciates, what happens to the price of exports for foreign buyers?

   Model answer

   Exports become relatively more expensive for foreign buyers.

2. 2

   How does currency appreciation affect the cost of imports for domestic consumers?

   Model answer

   Imports become relatively cheaper for domestic consumers.

3. 3

   What is likely to happen to demand for a country's exports following an appreciation of its currency?

   Model answer

   Demand for exports may fall because they become more expensive for foreign buyers.

4. 4

   How might currency appreciation affect domestic demand for imported goods?

   Model answer

   Demand for imports may rise because they become relatively cheaper.

5. 5

   How might currency depreciation affect domestic demand for imported goods?

   Model answer

   Demand for imports may fall because they become relatively more expensive.

6. 6

   Why does exchange rate volatility create problems for businesses involved in international trade?

   Model answer

   It creates uncertainty, making pricing, planning and profit forecasting more difficult.

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