Towards the end of 2009 the pound fell to a six month low of 1.0628 Euros. Figures released by the UK government suggested that demand was still low in the country. The pound was also under downward pressure because of the low value of the interest rate. A recent report suggested these would remain at their historic low of 0.5% until 2014. Business confidence in general remained frail and there was concern over when the UK economy would start to recover from its negative growth. There was huge excess capacity in the UK. In addition the government had a huge deficit which was expected to cause problems with cutbacks and tax increases in the future.Questions Explain what determines the value of a currency.Analyze why the pound might have fallen so low towards the end of 2009.Analyze the possible effects on the UK economy of a fall in the value of the currency. Towards the end of 2009 the pound fell to a six month low of 1.0628 Euros. Figures released by the UK governmentsuggested that demand was still low in the country. The pound was also under downward pressure because of the lowvalue of the interest rate. A recent report suggested these would remain at their historic low of 0.5% until 2014.Business confidence in general remained frail and there was concern over when the UK economy would start torecover from its negative growth. There was huge excess capacity in the UK. In addition the government had a hugedeficit which was expected to cause problems with cutbacks and tax increases in the future.Questions1. Explain what determines the value of a currency.2. Analyze why the pound might have fallen so low towards the end of 2009.3. Analyze the possible effects on the UK economy of a fall in the value of the currency.

Exchange rate refers to the amount of domestic currency that required to purchase one unit of…

Answered: Towards the end of 2009 the pound fell…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter11: Foreign Exchange, Trade, And Bubbles

Section: Chapter Questions

Problem 4MC

See similar textbooks

Related questions

Question

Towards the end of 2009 the pound fell to a six month low of 1.0628 Euros. Figures released by the UK government suggested that demand was still low in the country. The pound was also under downward pressure because of the low value of the interest rate. A recent report suggested these would remain at their historic low of 0.5% until 2014. Business confidence in general remained frail and there was concern over when the UK economy would start to recover from its negative growth. There was huge excess capacity in the UK. In addition the government had a huge deficit which was expected to cause problems with cutbacks and tax increases in the future.

Questions

Explain what determines the value of a currency.
Analyze why the pound might have fallen so low towards the end of 2009.
Analyze the possible effects on the UK economy of a fall in the value of the currency.

Towards the end of 2009 the pound fell to a six month low of 1.0628 Euros. Figures released by the UK government
suggested that demand was still low in the country. The pound was also under downward pressure because of the low
value of the interest rate. A recent report suggested these would remain at their historic low of 0.5% until 2014.
Business confidence in general remained frail and there was concern over when the UK economy would start to
recover from its negative growth. There was huge excess capacity in the UK. In addition the government had a huge
deficit which was expected to cause problems with cutbacks and tax increases in the future.
Questions
1. Explain what determines the value of a currency.
2. Analyze why the pound might have fallen so low towards the end of 2009.
3. Analyze the possible effects on the UK economy of a fall in the value of the currency.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.