International Economy

1)Consider the following, all of which will affect the demand for pounds on foreign exchange marketsorthe supply of pounds on foreign exchange markets (either one or the other - never both)

State what the effect of each of them will be (will it increase it or reduce it?)

Say whether the transaction will be recorded on the Current Account or the Capital Account of the Balance of Payments.

a) There is an increase in demand in Britain for Renault motor cars

b) French consumers start to buy British beef again.

c) LEB (the London Electricity Board) is purchased by EDF (Electricit de France)

d) Large numbers of Russian students come to Britain to study.

e) EDF pays a large dividend to shareholders. Some shares in EDF are owned by a British pension fund.

2)Explain the effect on the business sector of the economy of a rise in the exchange rate for the country's currency.

3)A substantial fall in the price of the pound in foreign currencies (e.g., the price of the pound in euros) could be expected to affect physical quantities of exports from the UK and imports into the UK as follows:

(a)Increase both export and imports.

(b)Increase exports, decrease imports.

(c)Decrease both exports and exports

(d)Decrease exports, increase imports.

(e)Have no perceptible effect on either imports or exports.