Hi, I don't understand the last part of this question where it says that an appreciation of sterling would mean the UK will tend to exort fewer cars to the U.S. than before. I would have thought it would be more, given that the sterling appreciates, which means the demand for sterling has increased, and so more exports (which show as a + in the balance of payments)? Thank you,
Sterling can appreciate for all sorts of reasons, eg an increase in UK interest rates, whihc are not directly related to exports. So, the quesiton is saying that if sterling appreciates (for whatever reason), then the US$ price of exports will increase (as people in the US will have to hand over more US$s to get the same number of £s to buy UK exports priced in £s). Consequently, the demand for UK exporrts will decrease.
