Exchange rate policy

Question 1

Using diagrams, explain what would happen to Sterling, other things being equal, if:

  1. There are more tourists into the UK.

  2. Foreign speculators sell Sterling.

  3. UK interest rates rise relative to those of the UK’s trading partners.

Question 2

Analyse one likely effect of a fall in the value of Sterling on a particular market in the UK micro-economy. You will need a diagram to support this answer.