Apr 28 2008

More on exchange rates: Winners and losers of a strong British pound

BBC NEWS | Business | Q&A: Strong pound – winners and losers

Here’s another great article to help you understand the advantages and disadvantages of a strong currency. The British pound reached an all time high against the dollar late last year ($2.08 per pound, or 48 pence per dollar!!). So who are the winners and losers from a strong British pound, anyway?

Here’s a quick run-down… to read about why, click the link and read the article.

  • Winners: Brits traveling and shopping in the US, US businesses, British airlines, British consumers, British drivers
  • Losers: Americans traveling in Britain, small businesses in the UK, British exporting firms, British airlines, shareholders in certain companies.

Discussion Questions:

  1. Why may British airlines benefit AND lose with a stronger British pound?
  2. Who else will benefit from the strengthening pound that is not mentioned by the article? Refer to your notes from class.
  3. Who else will be harmed by the stronger pound that is not mentioned?

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

47 responses so far

47 Responses to “More on exchange rates: Winners and losers of a strong British pound”

  1. Marco Garofaloon 06 Nov 2007 at 10:59 pm

    1. British airlines will benefit and lose with a stronger Pound. They will benefit because it is less costly for them to operate in US airports. However, they will lost because consumers in the US pay their airfare in US dollars, meaning that the airlines lose on their flights from the US.

    2. A high value of currency may be good to fight inflation.

    3. However, a high value of inflation also brings about higher rates of unemployment, due to pressure on domestic firms from cheap imports.

  2. Marco Garofaloon 06 Nov 2007 at 11:01 pm

    1. British airlines may benefit because they find it less costly to operate in American airports. However, Americans still pay their airfare in Dollars, so the airlines lose out on that transaction.

    2. A highly-valued currency results in less inflation

    3. However, pressure on domestic firms from cheap imports drives up the unemployment rate.

  3. Marcoon 06 Nov 2007 at 11:04 pm

    1. British airlines will benefit because they find it less costly to operate in US airports, however, the US consumers still pay their airfare in Dollars. The airlines lose on that transaction

    2. Strong currency leads to less inflation

    3. However, it also leads to higher unemployment due to pressure on domestic firms from cheap imports.

  4. Danny Witterson 08 Nov 2007 at 11:16 pm

    Why may British airlines benefit AND lose with a stronger British pound?

    Airliners must pay airport tax when grounded at international airports. So if a british airliners plane is at JFK, it pays an amount depending on the time it stays at the airport. If the british pound appreciates, the value they pay in dollars is relatively less and thus they benefit. Airliners may lose though because if the british pound appreciates, travellers may choose other airliners for travel, for example united airlines. Therefore, BA loses business.

    Who else will benefit from the strengthening pound that is not mentioned by the article?

    FDI in Britan, American companies investing in GB.

    Who else will be harmed by the stronger pound that is not mentioned?

    American consumers.

  5. James Tsaoon 11 Nov 2007 at 10:45 pm

    Basically, British airlines benefit from appreciated pounds since the price of oil is dollar-based. Thus, if the value of pounds go up, British airlines can pay less to acquire the same amount of fuel. For example, if the value of pounds to dollars is 1:1, and a unit of oil costs 1 dollar, a British airline can acquire 100 units of oil with 100 pounds. When pounds grow stronger and the ratio becomes 2 dollars: 1 pound, British airlines only need to pay 50 pounds for the same 100 units of fuel.

    However, British Airlines will have losses because as the pound appreciates, the price of its tickets may remain the same but the value that they stand for increases. British airlines, therefore, will lose its American customers because Americans will see British airplane tickets to be more expensive than American airlines.

  6. kevin maon 20 Nov 2007 at 7:20 pm

    British Airlines will benefit from from a stronger pound because they will save money when buying oil. They will not benefit because Americans would find the britishs airlines ticket more expensive than their own carriers.

    Any consumer outside of England that wants to buy British products will not benefit from the stronger pound, they may find that they're much more expensive.

  7. Chan Min Parkon 28 Apr 2008 at 8:07 pm

    Oil is cheapter for British Airlines because oil is traded in dollars. As the pound appreciates, British Airlines will have to give up less pounds for the same amount of oil. However American consumers will have to give up more to get a ticket for British Airlines. If someone has British assets, then it is worth more now as it appreciates. If you are in Britain and you are getting paid in dollars, you can buy less now.

  8. Jo Loon 28 Apr 2008 at 8:41 pm

    1. British airlines benefit with a stronger pound because british travelers would have to pay less to travel from Britain to America. These airlines do not benefit because their demand of airline tickets will decrease because less and less Americans would be able to afford the rising prices because they using the deprecciating dollar.
    2. People who sell/export to Britain will see an increase in sells, thus increasing profit. This is because Britian sees these goods as cheaper compared to before.
    3. Anybody from the US doing business with people in Britain (except investors) will suffer as a result of the decrease in value of the dollar.

  9. judychenon 28 Apr 2008 at 9:39 pm

    British airlines benefit because oil prices is relatively cheaper now, however, since US is depreciating, less US tourists going to UK.

    US benefits from the strenghtening pound because US dollar is cheaper for British now, so they would like to buy imports from US and prefer to travel to US.

    Firms in UK will be harmed by the stronger pound, because UK goods become more expensive to the rest of the world, so less people tends to buy the imports from UK now.

  10. Alex Goldmanon 28 Apr 2008 at 5:06 pm

    1. British airlines benefit from a stronger pound because it is relatively cheaper for them to operate in airports (taxes), and it could help as resources such as oil also become relatively cheaper. The airlines are hurt because now their services are relatively more expensive compared to other airlines.

    2. Others who may benefit from the stronger pound include those who sell to the British airlines. For example, if the British airlines buys oil from the Iran, Iran will experience an increase in exports.

    3. People harmed by the stronger pound are those who buy imports from England. Now the goods are relatively more expensive, and thus less desirable.

  11. Jessica Ngon 28 Apr 2008 at 5:41 pm

    1. British airlines benefit from a stronger pound because they have to pay a relatively cheaper airport tax, but at the same time they are hurt because consumers from other countries will have to pay a relatively higher price for British airlines services, and thus turn to other alternative airlines.

    2. Investors in Britain will also benefit from the stronger pound, as now their investment is worth more relatively speaking.

    3. The domestic firms in UK are affected by the stronger pound as their products are now more expensive to the rest of the world. Those who import from the UK will also be hurt, because again, products in the UK paid in pounds has become more expensive.

  12. Sharon Lion 28 Apr 2008 at 5:53 pm

    1. British airlines find it cheaper to buy oil to fuel their aircrafts and also cheaper airport taxes, but compared to other airlines, it will be more expensive for foreign customers.

    2. A stronger pound is good for exporters to BA.

    3. Americans, since the dollar is weaker in comparison, and people that buy English products.

  13. kxc.024on 28 Apr 2008 at 6:13 pm

    For consumers from other countries, an appreciation of the British pound is certainly a bad thing because now, imports from the UK will be more expensive. Large exporting companies will be hurt as well because now there are less consumers. For the British airlines, this is a great thing because now the resources they need for their planes will be cheaper. However, buying a plane ticket will now become more expensive.

    A stronger pound also means a better standard of living for the British people because now they can buy more things with the same amount of money.

  14. Kevin Yehon 28 Apr 2008 at 6:47 pm

    Welllllll,

    A stronger pound certainly raises the standard of living in the UK seeing as domestic goods will become cheaper relative to other currencies.

    This also occurs for British investors as their investments will rise in value as compared to other nations.

    Too bad for us foreigners the British pound appreciation makes British goods more expensive and all that. including airlines to GB. So don't go to the UK anymore lol.

  15. Tim Chuon 28 Apr 2008 at 7:02 pm

    1. The airlines are hurt in that their airlines seem more expensive to foreign countries but they can pay a lower airline tax and operate their airline

    2. Spectators who have invested may also benefit from a stronger pound.

    3. People that Britain exports to are harmed because their goods seem more expensive.

  16. kevinchiuon 28 Apr 2008 at 7:27 pm

    1. As the British pound appreciates, relative to the dollar, they will be able to use less pound to spend the same amount of dollars as before for things like operating their airline in the US/airline tax. However, the British pound appreciating will cause the British airlines to be more expensive in comparison to before.

    2. Foreign investors that have British assets can now change their assets in for more US dollars than before.

    3. US students that have to travel to the UK to visit relatives… as changing money into pounds is now more expensive than before.

  17. jacqueszhangon 28 Apr 2008 at 7:52 pm

    Since the pound is now worth more of American dollars, whether British airlines win or lose is dependent on where they are. In the US, they will win and in the UK, they will lose, as the British pound is worth more.

    Investors will want to invest in British assets now that the pound is greater in value. Speculators will also attempt to sell off their British pounds to make a profit.

    Also, those traveling to the UK will have to pay more than they had to before, and thus would end up losing.

  18. Jack Loon 28 Apr 2008 at 8:22 pm

    UK airlines might benefit from a stronger pound because it becomes relatively cheaper for them to operate in the United States. However, they are hurt at the same time because their customers that pay in dollars. Consumers in countries that import British goods are harmed by this relatively stronger British pound.

  19. Claire Moonon 28 Apr 2008 at 8:39 pm

    1. It's because in the United States the British airline will receive money in U.S. dollars which becomes cheaper when it is changed into British pound, however in contrast, when the British airlines head to United States, it will benefit.

    2. It would be all the investors of U.K. assets

    3. People who normally are British citizens or who works in British related companies will lose money if they moved to United States or to the companies.

  20. MichaelChowon 28 Apr 2008 at 9:30 pm

    1. British Airlines will both obtain benefits and loses due to a stronger British Pound. The airlines will benefit since it will be cheaper them in terms of working at US airports. Despite this gain from a stronger British Pound, the airlines will lose some customers from the US since this will appear to be more expensive to them the result is that the airlines lose business from flights from the US.

    2. This strong value of the British Pound can be used to combat inflation.

    3. Well like question number one regarding the customers from the US who plan to take the airlines to British for leisure or what not they will be discouraged by the price.

  21. Margaret Liuon 28 Apr 2008 at 10:07 pm

    1. British airlines would benefit in that traveling will be cheaper for the british. However, traveling will become more expensive for US travelers, there will also be less trips to britain from the us.

    2. Foreign investors will benefit from the strengthening pound as well as businesses in britain who import from the us. All consumers who consume american goods in britain will also benefit.

    3. Importers of british goods from the us will be harmed.

  22. Kristie Chungon 28 Apr 2008 at 10:48 pm

    1.) British airlines would benefit if the pound was stronger as there would be relatively cheaper airport taxes. However, at the same time, consumers from other countries would find it more expensive, and may opt for other airlines.

    2.) British investors would also benefit.

    3.) People who buy imports from England are going to be harmed by a stronger pound.

  23. Nicole Wongon 28 Apr 2008 at 11:09 pm

    British airlines benefits in that the revenue it gains from foreigners would be worth more, but this could also mean that they get fewer customers because foreigners find the airlines too costly.

    Foreigners who have invested in British assets would benefit as well.

    Countries that import many goods from Britain will be harmed as well, as the imports become relatively more costly

  24. Jennifer Choion 29 Apr 2008 at 12:09 am

    1. British airlines will benefit from a stronger pound because the costs of operating in airports will be relatively cheaper and also their gains will worth more than before the appreciation. They are hurt at the same time becuase customers will find their airline fee much more expensive and might look for other airlines.

    2. This will also benefit British investors as their investment will bring relatively bigger profit.

    3. Those who pay in pounds to buy British goods will be harmed by stronger pound.

  25. Calvin Luon 29 Apr 2008 at 12:34 am

    1. British Airlines Benefits from cheaper operating on American airports, but hurt from fewer customers due to higher price (British Airline can be consider an export for the Brits, ana a import for the Americans.)

    2. Investors that invest in Britan will benefit as the value of their profit had increased

    3. Those who use pounds to buy British goods are harmed by stronger pound.

  26. emilyyehon 29 Apr 2008 at 9:58 am

    1. The British Airlines will benefit because their earnings in pounds certainly helps increase their purchasing power on a global level, but also may diminish their consumer base internationally, decreasing their profits.

    2. Overall, the British population benefits from the stronger pound because it helps combat inflation.

    3. The competitiveness of the British industries declines however, as imports of foreign goods appear to be relatively cheaper.

  27. kevinhuangon 29 Apr 2008 at 5:05 pm

    1. British Airlines would benefit because they would have more spending power in the US; however, the US would fly less on British Airlines because they are too expensive for Americans.

    2. Foreign investors that invest in British Pounds will find an increase in their spending power.

    3. Anyone who wishes to purchase British goods would have a harder time because of their relatively higher prices.

  28. kevinmaon 29 Apr 2008 at 5:24 pm

    1.They will benefit in many ways. It would be cheaper for them to operate in foreign countries because of cheaper operating cost since the pound is stronger. It will also harm them because customers will not like their high prices.

    2.People who have all their money in pounds. Their money would become a stronger currency and they would be able to exchange for more of another currency using the pounds. Also British investors.

    3.People who buy imports from England will be harmed because it will cost more for them to get the same amount of goods.

  29. Jinnyon 29 Apr 2008 at 8:24 pm

    1. Well, the benefit is that they get comparative advantage in operating the British airlines. However, the trade-off is that the strong currency might scare off customers who would turn to substitutes for Brit airlines.

    2. Obviously, people who have invested in England! People with pounds and who are investing in British stocks and bonds and so on.

    3. I guess foreigners will be harmed since now they have to pay more to get British products.

  30. Jessicaon 29 Apr 2008 at 9:27 pm

    1. British airlines have both British customers and customers from other nations. It is relatively more expensive for the foreign citizens to take British airlines with a stronger pound, but it is relatively cheaper for the airline to pay its expenses, such as its repairs and its fuel costs.

    2. Basically, British citizens benefit from the stronger pound because it is relatively cheaper for them to buy products from other nations.

    3. People from other countries are harmed because it takes more money to buy the same good.

  31. calebon 29 Apr 2008 at 10:06 pm

    1. British airlines would have more people going from Britain to the US to buy products. They would be able to get more out of their money in the US than in Britain.

    2. British consumers would benefit from a more valuable pound, and exporters to the UK.

    3. People in countries that want to receive British business would be hurt because the British would be seeking for more goods at a higher quality, which with a stronger pound, they can both afford more goods at a higher quality from the US.

  32. Jonathan Lauon 29 Apr 2008 at 10:13 pm

    1. British airlines would benefit in that operating costs would be cheaper since the pound is worth more. However, British airlines would seem more expensive compared to other country's airlines, which would cause travelers to find cheaper alternatives.

    2. British citizens and investors would both benefit because it would be cheaper for British citizens to buy products from other countries and investors would obviously make more from higher interest rates.

    3. Foriegners would be harmed because British products would seem more expensive as compared to domestic products. In addition, British producers would also be harmed because of higher production costs.

  33. Julieon 29 Apr 2008 at 10:21 pm

    1. traveling will be cheaper for the british. but more expensive for americans, there will also be less trips to britain from the us.

    2. Foreign investors will benefit from the strengthening pound as well as businesses in britain who import from the US. benefits include people who consume US goods in britain.

    3. Importers of british goods from the us will be harmed.

  34. mina.songon 29 Apr 2008 at 11:29 pm

    I think everyone has agreed that british will benefit as value of the pound rises. But, I think it also could harm british because as the value of the pound increase, travelers to UK could decrease.

    And most of the british ppl will benefit by less inflation as the value of pound increase and other than british ppl, spectators and investors also could benefit from it.

    But ppl who imports goods from UK will harmed because relative price of same product would have increase.

  35. Annie Sungon 30 Apr 2008 at 12:22 am

    British Airways and investors in the UK would definitely benefit with the stronger pound as the airline company would incur more profit (but may lose some customers in the process) and investors' assets will increase in value. British exports, however, would become more expensive, so countries who trade with the UK, such as the US will be hurt.

  36. Howard Jingon 30 Apr 2008 at 1:10 am

    1. British airlines benefit in that more British citizens will be enticed to travel abroad with their strong pound, however other citizens such as Americans will choose not to travel to the UK due to their weaker currency. British airlines will also find it cheaper to operate in foreign countries.

    2. Investors in the British pound will also benefit from its rise in value.

    3. However, importers of British goods will face rising costs, so they will be harmed.

  37. Dana Y.on 30 Apr 2008 at 3:09 am

    1. Operating airlines is a two way business as it operates in many continents. Thus, British Airlines may benefit in U.S. airports as the cost of operating (airport taxes) is relatively lower. At the same time, British Airlines will be harmed by U.K.'s strong currency when operating in their home country: the airport taxes as well as the costs associated with food and food will be much higher. Not only that, British Airlines may have to engage in price discrimination as U.S. passengers might be unwilling to pay so much for tickets (unlike those in U.K., who although are as wary of their money, might be more accustomed to higher prices).

    2. Businesses that solely operate on pounds may benefit.

  38. Charlie.Gaoon 03 May 2008 at 1:10 pm

    I think in the long run, the winners of a strong British pound will eventually start losing and the losers of a strong British pound will start winning because let's face it, the pound isn't going to stay strong forever. As their currency rises, exports will decrease because goods are relatively more expensive and AD will decrease which will lead to a depreciation.

  39. Moritz A.on 02 Dec 2008 at 2:20 am

    British airlines will benefit from a stronger British pound because the USA has become more attractive to British consumers who will therefore book more flights to the States. However if the US Dollar has depreciated compared to the Pound, that means that flights from American airlines will appear cheaper so more British people will fly on American airlines. This would mean that the British airlines face a decrease in demand for flights.

    Obviously American producers will benefit from a stronger Pound because British consumers will buy more imports. American investors in Britain will also benefit from a stronger Pound.

    American consumers will be harmed by an appreciation of the pound because goods seem to become more expensive.

  40. Magdalenaon 08 Dec 2008 at 8:02 pm

    A stronger pound would attract more consumers to travel which would benefit the airlines, however, because of the strong pound travellers are most likely going to chose non-British airlines when they travel, they would chose the airline which would be less expensive, which the wouldnt be the British one because of their strong pound.

    A strong pound would downward pressure on inflation, it would also lead to investors investing more in Britain.

    Foreign producers would also benefit since the British consumers would demand more foreign goods, and because a strong currency leads to cheaper imports.

  41. Liviaon 08 Dec 2008 at 8:03 pm

    As it had been stated many times above, an obvious reason why British airlines would benefit from a strengthened British pound is because now more Britons will want to travel more frequently to the states or elsewhere and therefore consume more air transport. On the other hand, if the pound has appreciated compared to other currencies like the US dollar, then American flights may seem cheaper to the British consumer and for this reason the Britons may chose other, non British, airlines.

    From class we learnt that as the exchange rate increases this should also benefit the consumer that not only have a wider range of products, as there was an increase in imports but also the imports will seem cheaper therefore they will be more of the product. Furthermore there will be an increased pressure on the domestic producers to keep their costs low due to the fact that the imported inputs will have decreased in price, thereby putting downward pressure on price in general i.e. inflation. Moreover domestic producer will be force to improve their efficiency in order to compete with the consumer demands of wanting cheaper imports as opposed to the more pricey domestically produced goods. Finally investors, with the appreciation of the pound, will want to invest more in England seeing as they would gain more return from it.

    Not mentioned in the article but can be very much damaged by an appreciated pound is the export and domestic industries. When the pound appreciates, foreign goods appear cheaper therefore imports will increase compared to exports, this can cause unemployment in the export sector. Additionally, unemployment can be caused by the lack of demand for domestically produced goods.

  42. Christinaon 16 Dec 2008 at 7:20 pm

    Why may British airlines benefit AND lose with a stronger British pound?

    A stronger British pound would disadvantage British airlines as foreigners will travel less through them as their prices will seem more expensive relative to other currencies. In addition to this, tourism in Britain might decrease due to increase in relative prices (in relation to the foreigner's currency) leading to a decrease in people flying to Britain in general. In addition to this, the brits themeselves would use less of their airlines as other airlines would look cheaper in relation to the British ones.

    British airlines could benefit from a stronger British pound because as tourism to Britain decreases, simultaneous increase in tourism from Britain to other countries occurs, leading to more people travelling abroad, resulting to an increase in British flights. That is, if British people are "faithful" to their airlines.

  43. Deirdre Stensonon 17 Dec 2008 at 5:17 am

    Personally, I found this article to be both interesting and helpful. Although I cannot see many consumers closely examining different exchange rates and basing all of their actions off them, I do feel that an understanding of exchange rates can help benefit consumers in making the most economical choices.

    In the case of a strong British pound, as stated in the article the winners are both in the UK but also in the US, showing the wide range that can be affected by a strengthening a currency.

    Most interestingly, is the 'real' reactions in this situation. For example, Christina mentions the idea of British people being 'faithful' to their airline, however I wonder if this is actually the case or do they simply look for the airline with the lowest prices?

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