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Anyone know how to answer this question?
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Last edited by Shoaibrasool2; 5 months ago
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Report 5 months ago
(Original post by Shoaibrasool2)
Anyone know how to answer this question?
I have criticisms regarding the question:
1. Having a chart showing the exchange rate between $ and £ has 0 relevance to exchange rate forward contracts for exporters from the EU or China
2. Although I have no experience in the picture framing business, I'm confident their margins aren't so thin that a change in exchange rate will affect them that much. Picture frames aren't oil, soya beans, wheat, coffee, or orange juice for example.
3. The election of the government in May 2017 probably has less relevance on Brexit than choosing the most competent party
4. If memory serves, the US wasn't doing too hot during this period either, so it's difficult to isolate the effects. You also can't label a change in exchange rate mainly on one thing, especially in an open economy, and where there are multiple factors at play.
5. Having a graph depicting the exchange rate for $ vs £ isn't representative for other currency pairs with the £

With anything related to exchange rates, you would want to refer to the IS-LM model.
You would need to define what derivatives are, especially those related to exchange rates. You would ideally highligh the limitations of the derivative.
You would need to explain why Brexit cause a change in exchange rate
You would probably want to give the bull and bear arguments
Which importers will experience the most impact? Why?
What impact will Brexit have on businesses? Frequency and volume of business?

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