Exchange rates and their effects, and the balance of payments.
Exchange rates
The price of one currency in terms of another, set by demand and supply for the currency (floating) or fixed by the government.
- Appreciation (currency rises): exports dearer, imports cheaper (SPICED — Strong Pound, Imports Cheap, Exports Dear).
- Depreciation (currency falls): exports cheaper, imports dearer — can boost exports but raise import prices (imported inflation).
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