Finance and the Economy · Seminar 10 · Global business and economics

When the pound strengthens against the euro

At £1 = €1.15 a €1,150 input costs a UK importer £1,000, and a £1,000 export sells in Europe for €1,150. Move the rate and see who gains: a stronger pound makes imports cheaper and exports dearer. Questions 4, 5 and 6, from Business Economics (Mankiw, Taylor & Ashwin, ch. 20 and 23).

Pick a rate or slide it. The chart shows the percentage change in the import’s sterling cost and the export’s euro price, relative to £1 = €1.15.
€1.00 (weak pound)€1.40 (strong pound)
€500€2,000
£500£2,000

Import costs the UK firm

Export costs the European buyer

If the euro price is held, exporter receives

Who gains

Q6 in the same logic. If the euro appreciates, a US pension fund earning euros is happy (more dollars per euro); German exporters are not (dearer abroad), though German firms importing inputs from outside the eurozone benefit; Australian tourists get fewer euros for their dollars; a British firm buying property in Europe pays more in pounds, but would not care if the property were elsewhere.

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