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Chapter 1

Sensitivity of the attainment of financial objectives

to changes in economic and business variables

7.1 Introduction

When economic variables (such as exchange rates, inflation rates and interest rates)
and/or business variables (such as margins and volumes) change, it is important to
be able to assess the likely impact on the entity and its chances of achieving its
financial objectives.

7.2 Exchange rates

Terminology

GBP is STRENGTHENING/APPRECIATING means that GBP 1 is worth MORE
foreign currency

e.g.

GBP 1 = USD 1.6000 in year 1

GBP 1 = USD 1.7000 in year 2

The GBP has strengthened (and the USD has weakened).

GBP is WEAKENING/DEPRECIATING means that GBP 1 is worth LESS foreign

currency

e.g.

GBP 1 = USD 1.6000 in year 1

GBP 1 = USD 1.5000 in year 2

The GBP has weakened (and the USD has strengthened).

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