Suggest reasons for the fall in exchange rate of sterling.
Block Type
Knowledge Checkpoint
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Knowledge Checkpoint: Suggest reasons for the fall in exchange rate of sterling. (2 marks)
You must make 2 separate points of distinction to gain full marks.
1 mark for each valid point.
A model answer could look something like this:
Low interest rates in the UK can lead to a depreciation of sterling as there’s less demand for foreign investors to hold assets in GBP (1).
A persistent trade deficit can cause a fall in the exchange rate as there’s greater demand for foreign currencies to pay for these imports than there is demand for sterling (1).