Category: Economics for Business: Ch 32
The euro has climbed during March to a record high against both the dollar and the pound. The reluctance of the ECB to cut interest rates has simply served to strengthen this trend and it looks set to continue for a while.
Euro hits record highs Times Online (6/3/08)
Euro hits new highs as ECB rejects early cut in rates Times Online (7/3/08)
Sterling hits new low against euro Guardian (5/3/08)
Dollar slides to fresh euro low BBC News Online (14/3/08)
Questions
| 1. |
Explain the principal factors that have led to the appreciation of the euro against the dollar.
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| 2. |
Discuss the likely impact of this appreciation on firms in (a) the eurozone and (b) America. |
| 3. |
Examine whether the appreciation of the euro strengthens or weakens the case for those in the UK wanting to join the euro. |
The fall in the dollar has continued with the value of sterling rising above $2.10 for the first time in 26 years. The articles below look at a range of issues related to the strong pound and there are also case studies of the impact on a guitar strings company and the manufacturer JCB.
Questions
| 1. |
Identify the main factors that have caused the fall in the value of the dollar. Use supply and demand to illustrate your answer as appropriate. |
| 2. |
Assess the impact of the strong pound on UK exporters and importers. |
| 3. |
Discuss whether intervention in the foreign exchange market may be appropriate to help UK exporters to remain more competitive in world markets. |
The article linked to below from the Guardian by Larry Elliott argues that there are significant global imbalances in the world economy and that the IMF has to an extent ignored these imbalances. He argues that the sub-prime mortgage crisis, exchange rate movements and the rapid rise in oil prices are creating significant problems for the world economy.
Questions
| 1. |
Explain the main global imbalances identified by Larry Elliott in the article. |
| 2. |
Analyse the likely impact of these imbalances on the global level of economic growth. |
| 3. |
Explain the statement in the article: “Like many other countries in the region, the lesson China learned from the Asian financial crisis of 1997 was that it needed to build up a war chest of foreign exchange reserves that could be deployed in the event of a speculative attack.” |
The article below from the BBC website looks at the issue of microfinance – the provision of very small loans as a form of development assistance to help people in developing countries to support themselves and develop their businesses.
Small loans to women make big changes BBC News Online (21/8/07)
Questions
| 1. |
Explain what is meant by microfinancing. |
| 2. |
Examine the reasons why microfinancing is considered more effective at promoting economic development (as opposed to economic growth). |
| 3. |
Assess the extent to which microfinancing could help in other developing countries to promote economic development. |
The article linked to below is an extract (printed in the Guardian) from a new book by Dan Atkinson and Larry Elliott (economics editor for the Guardian). The introduction to the article summarises its theme quite effectively:
“We don’t manufacture anything any more. Most of the world won’t buy our records or watch our films. Only our gift of the gab is keeping Britain’s economy ticking over. But how long can the hot air last, ask Larry Elliott and Dan Atkinson “
Talk is cheap Guardian (18/5/07)
Questions |
| 1. |
Explain the underlying trade performance of the UK in recent years for (a) trade in goods and (b) trade in services. |
| 2. |
“Labour believes Britain is at the cutting edge of the knowledge economy and that Britain’s well-educated (sic), highly skilled (sic) and entrepreneurial (sic) workers are ready to kick German, American, Japanese and Chinese butt all round the global village.” Discuss the extent to which this is true. |
| 3. |
Assess the extent to which the theory of comparative advantage can help explain the differences in trade performance outlined in the article. |