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” For example, if a company is exporting (let’s say from the UK to a eurozone country) and the euro weakens from say €/£1.1 to €/£1.3 (getting more euros per pound sterling implies that the euro is less valuable, so weaker) any exports from the UK will be more expensive when priced in euros. So goods where the UK price is £100 will cost €130 instead of €110, making those goods less competitive in the European market. ”
In the above example, it says 1 Euro = 1.1 Pound ; changes to 1 Euro = 1.3 Pounds
but it also says euro had weakened, although we are able to buy more Pound with the same 1 Euro.Can you please clarify Sir.
If an exchange rate is quoted in the exam as €/£ 1.1, it does not mean that 1 euro is equal to 1.1 pounds. The quote is against the pound and it means that 1 Pound is equal to 1.1 Euros.
If the rate increases to 1.3, then it means that 1 Pound buys more Euros and therefore the Pound is appreciating in value and the Euro is depreciating.
I do suggest that you watch my free lectures on the management of foreign exchange risk because in the first of the lectures I do spend time explaining how exchange rates are quoted in the exam.
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