(i) Explain the term exchange rate.

The price of one currency expressed in terms of another currency.

The price for which the currency of a country can be exchanged for another country's currency

5 marks

(ii) Outline the possible economic effects on the Irish economy of an appreciation in the value of the euro

against the US $.

Imports prices decrease / imports cheaper

Demand for imports from the US may rise as imports are relatively cheaper.

This will result in a lower import bill for Irish producers / an increase in imports from the US.

The cost of Irish people visiting the US will be cheaper so more Irish people will holiday there.

Exports prices increase / exports dearer

Demand for Irish exports in the US may fall as the price of exports from Ireland increase.

This may result in a reduction in Irish exports as they become harder to sell / exports relatively

uncompetitive.

The cost for Americans to visit Ireland will increase so there will be less American tourists visiting Ireland.

Falling employment

With a possible fall in exports, employment in those industries which depend on Irish exports to the US may

fall.

Slowdown in rate of economic growth

With job losses, spending within the Irish economy may fall. Expenditure by the Irish government on social

welfare may increase. A combination of these factors would impact negatively on economic growth.

US investment in the Irish economy

It becomes less attractive for US companies to invest in Ireland as it is now more expensive to purchase

capital goods / invest in Ireland. Investment by Irish companies in the US may be encouraged as it is

cheaper in euro terms.