If political instability prompts Russians to buy UK assets instead of domestic ones, what happens to the pound's value and UK net exports?
Show answer Hide answer
Answer: B. The pound appreciates, and UK net exports fall
Explanation
An influx of foreign capital into UK assets increases the demand for pounds, causing the pound to appreciate. A stronger pound makes UK exports more expensive and imports cheaper, leading to a fall in UK net exports. Buying UK assets requires foreign investors to exchange their local currency for British pounds on foreign exchange markets. The resulting appreciation of the pound reduces international competitiveness, causing UK exports to drop and imports to rise. Net exports equal the value of a nation's total exports minus its total imports over a specific period. Currency appreciation makes domestic goods costlier for foreign buyers while making foreign goods cheaper domestically. International capital flows drive exchange rate movements and directly influence current account balance outcomes.
Net exports do not rise when a currency appreciates; higher export prices suppress foreign demand and reduce net exports. Currency depreciation would occur if capital were flowing out of the UK rather than entering British asset markets. Assuming net exports increase during currency appreciation contradicts standard international trade price elasticity principles.
Related questions
Q1. Given ABC publishing selling a textbook and study guide with values of Rs75/Rs15 for Raheel and Rs60/Rs25 for Mariam at zero marginal cost, what is the optimal combined price when employing a tying strategy?
Show answer Hide answer
Answer: C. Rs 85
Raheel values the bundle at ninety currency units while Mariam values the exact same bundle at eighty-five. Pricing the bundled products at eighty-five ensures that both consumers find the purchase price acceptable. A ty...
Q2. What outcome is likely to follow an increase in U.S. income leading to higher domestic sales and profits?
Show answer Hide answer
Answer: C. increasing direct investment into the United States
Rising domestic incomes and corporate profits signal strong economic performance to foreign investors. Attractive business prospects encourage foreign enterprises to expand operations inside the United States. This econo...
Q3. For addressing which economic issues are supply-side policies most suited?
Show answer Hide answer
Answer: D. A fall in aggregate demand
Supply-side policies aim to increase productive capacity and output, typically by addressing structural issues, cost reductions, or aggregate demand shortfalls. A fall in aggregate demand can be addressed or mitigated by...
Q4. What term describes a trade restriction that limits total annual imports to a specific quantity without dictating the origin country or authorized importers?
Show answer Hide answer
Answer: D. a global quota
A global quota sets a physical limit on the total volume of a specific good that can be imported annually without restricting the source country or authorized importers. Importers compete freely to bring in goods until t...
Q5. If Small Town cable subscribers decline from 30000 to 20000 when prices rise from Rs 30 to Rs 40, what is the price elasticity of demand using the midpoint formula?
Show answer Hide answer
Answer: A. 1.4
The midpoint formula calculates percentage changes using average quantity and price bases. The percentage change in quantity equals 10,000 divided by the average of 25,000. Dividing the quantity change by the price chang...
Q6. If a Swiss television set priced at 400 francs in Switzerland sells for $200 in the U.S., what is the implied franc-to-dollar exchange rate?
Show answer Hide answer
Answer: A. 2 francs per dollar
An exchange rate is calculated by dividing the foreign price by the domestic price. Here, 400 francs divided by $200 equals 2 francs per dollar. Comparing the local currency price to the foreign currency price reveals th...