A UK outdoor clothing producer sets the price of its coats in pounds for customers in the euro area. It buys fasteners from the euro area at a price fixed in euros. The pound depreciates against the euro. Which statement gives the best assessment of the effect on the producer?
Both the price paid by euro-area buyers and the pound cost of fasteners fall, improving sales and costs.
Coats become dearer to euro-area buyers, while fasteners cost fewer pounds, creating opposing effects.
Coats become cheaper to euro-area buyers, but fasteners cost more in pounds, so the overall effect depends on the size of each change.
Both the price paid by euro-area buyers and the pound cost of fasteners rise, putting pressure on sales and costs.
53 exam-style questions on OCR GCSE Economics 4.3 Exchange rates, covering 4.3.1 Draw how exchange rates are determined, 4.3.2 Analyse how exchange rates are determined, 4.3.3 Calculate currency conversion, 4.3.4 Analyse exchange rate data, and 4.3.5 Effect of exchange rate changes. Each one has a worked solution and a mark scheme showing where the marks go.