Question

On June 23, 2016, 51.9% of British voters decided to leave the European Union. The media quickly dubbed this "Brexit". Using supply and demand graphs for both the market for pounds in the United States and the market for dollars in Britain, please show and explain how Brexit has caused the pound to depreciate.

Answer 1

Step-by-step explanation:

Since June 23, 2016, when British voters decided to support the Brexit, negotiations have taken place and two extensions have been established to find a break-up agreement that satisfies both parties. So far it has not been possible.

The main affected of this situation has been the same United Kingdom who has seen how its economy and especially its currency, have been affected and deteriorated against their levels before the referendum. The pound for example, this year reached a price below 1.20 against the dollar (see chart), something that had not been seen since 1985, leading to the currency devaluing more than 25% while against the euro the fall is around 20% and is at a minimum of 2009. The pound is the first instrument that receives the impact of the Brexit and is the way investors, who think expect a Brexit without an agreement, position an operation against the United Kingdom.

Regarding exports, some studies assure that if Brexit were executed, this decision would result in a loss of US $ 16,000 million only in exports to the European Union, as they would lose tariff preferences. And experts estimate billions of dollars in losses to exports to other countries without preferences, as it would have to start negotiating treaty by treaty. In the end, the pound is affected since its products lose impact on the world market and, therefore, the money flow of this currency decreases, which leads to the devaluation of the currency.