1. Exchange rate effect on trade balance. Would the UK balance of trade deficit be larger or smaller if the pound depreciates against all currencies, versus depreciating against some currencies but appreciating against others? Explain.
2. Demand for exports. A relatively small UK balance of trade deficit is commonly attributed to a strong demand for UK exports. What do you think is the underlying reason for the strong demand for UK exports?
3. Demand for imports. Explain why a devaluation may result in a higher total import value. Why do we expect it to be lower?