Small Business Dilemma
Assessment of Central Bank Intervention by the Sports Exports Company Jim Logan, owner of the Sports Exports Company, is concerned about the value of the British pound over time because his firm receives pounds as payment for footballs exported to the United Kingdom. He recently read that the Bank of England (the central bank of the United Kingdom) is likely to intervene directly in the foreign exchange market by flooding the market with British pounds
1. Forecast whether the British pound will weaken or strengthen based on the information provided.
2. How would the performance of the Sports Exports Company be affected by the Bank of England’s policy of flooding the foreign exchange market with British pounds (assuming that it does not hedge its exchange rate risk)?