We know that exchange rate is influenced by the demand of the particular currency. Sterling exchange rate against Yen has shown significant growth in the first quarter of year 2002. It indicates that the demand of the Sterling have grown against Yen. In the year 2003 Yen have appreciated against Sterling. In reviewing the exchange rate on a broader base than quarterly it is evident that although although 2000 was a year of decline for the Sterling against the Yen, there was a remarkable jumps in the first quarter of 2001 which saw the quarter ending at the same rate per se as the first quarter of 2000 (the quarter in which we began the analysis.) In total for year 2001 the Sterling saw no depreciation against the Yen. After its approximate 12 point jump between the 4th quarter of 2000 and the 1st quarter of 2001, the remainder of the year saw slight growth. Then although not as dramatic as was the 10 point leap between 4th quarter of 2001 and the 1st quarter of 2002. During 2002 saw the first depreciation in the Sterling of approximately 4 points in quarter 2 where it remained constant through the 3rd quarter. Again in between quarter 3 of 2002 and the 4th quarter of 2002 the Sterling gained almost 8 points before dropping slightly in the 1st quarter of 2003 only to moderate in the 2nd quarter and then steadily decline through the end of the quarter. A noticeable factor during the four year analysis other than quarter fluctuations the last quarter of 2003 ended with the Sterling just shy of gaining 15 points against the Yen.
As we can see from the graph above, the Sterling exchange rates have depreciated to its minimum during the fourth quarter of year 2000. It was the period when the Iraq war had impacted the global economy as a whole and was not in particular related specifically to the Yen. In the year 2001 it has shown slow and steady growth. The value ranged 172.26 to 178.45 with a growing pattern. During the first quarter of year 2002 it was a good jump in the value of sterling against Yen with an increase realization of almost 12. It was 188.79. This value depreciated in the next two quarters. The fourth quarter of the same year it was maximum of all the four years. The fluctuation pattern of the Sterling exchange rate in the year 2003 has been of depreciation. The Sterling value has increased to 191.9 in the quarter 2 of the 2003 which was higher than the first quarter which again depreciated sharply in the next two quarters.
The Sterling Exchange Rate against The Japanese Yen 2000-2003
Source: Economic Trends (2004), Table 6.1, P126
Table 1: Sterling Exchange Rate against Japanese Yen Year 2000-2003
b. Provide an analysis of the possible causes of exchange rate appreciation of Sterling against Yen.(20 Marks) (a n b 1250 words)
Answer: The fluctuation of the value of any currency means appreciation or depreciation of the value of the currency against the other currency. The cause of fluctuation of any currency