British Pound Essay

2022 words - 9 pages

British Pound (GBP)

Executive Summary

A nation’s currency can be affected in many ways including economic, political, social and cultural events related to particular country. The exchange rate will move positively or negatively dependent on how adversely each of these factors cause change to the currency’s spot rate. Throughout our evaluation of the Great British Pound, we were able to track and measure how each of the factors caused change in the currency’s value.
Over the past four months we have seen a significant decrease in the value of the British Pound. As will be explained in this paper, many different factors caused downward pressure to be placed on the currency. Expected ...view middle of the document...

Today it floats freely, but it tends to have correlation with the Euro due to the United Kingdom's economic involvement in Europe. Today it is the fourth most traded currency on the foreign exchange market, the third most held reserve currency, and it is part of the basket of currencies that calculate the International Monetary Funds special drawing rights (Dawnay, Kit).

Economic

There are five basic economic factors that affect all currencies and the British Pound is no exception. These five factors are monetary policies, price inflation, confidence, economic growth (GDP) and the balance of payments (5 Reports). The monetary policy acted out by the Bank of England (BOE) wants to ensure that stability in the currency maintains to keep the people of England confident in the market and help the economy grow (5 Reports ). If inflation increase in the home country relative to other countries the value of the home currency will depreciate in comparison. The GDP of a country in particular England will help show where it is in comparison to other countries and will allow for to predict how the currency might be altered because of it. The balance of trade is the difference in values between exports and imports (5 Reports ). As you can see through the definitions of these economic factors they mostly all are connected in one way or other. This causes a domino effect not only in the local economy but throughout the world as well.
The article “the British Pound Continues Its Downward Spiral” talks a little about how the pound continues to fall. This article was written on January 28th, 2013, when the British Pound was in a little bit of a free fall. One economic that the article talks about is the monetary factor of inflation. "Mr. Carney's…willingness to consider other monetary policy targets than inflation, will fuel sterling-negative sentiment," said Kit Juckes, chief currency strategist at Societe Generale in a note clients (Fletcher, Alexandra). The article also talks about how the Bank of England should stop from doing anymore monetary easing. The British government has bought billions of pounds worth of bonds to try to help control the British Pound.
Great Britain is the fifth largest trading nation in the world; Machinery and transport, manufactured goods and chemicals, and steel are Britain's largest export earners. Nearly sixty percent of British imports are finished manufactured goods, while just under three per cent are basic materials. Food, beverages and tobacco are major non-manufactured imports, whilst machinery and transport equipment accounted for just under half of all imports in 2000. Other major imports include chemicals, fuels, clothing and footwear. (wikiinvest) UK Gross Domestic Product fell 0.3% after the third-quarter at the end of 2012. As a result of this 2013 estimates will be as follows; “Gross domestic product will increase 0.6 percent this year, compared with a previous forecast of 1.2 percent, Osborne...

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