Explain how exchange rates can affect profits and sales for businesses that export.

Direct answer

A weaker pound makes the business’s services cheaper for EU customers, so sales volume is likely to rise. However, the cost of any imported software licences or cloud hosting paid in euros rises in pounds, reducing profit. The net effect on profit depends on the relative size of revenue and cost changes.

How it works

The answer shows that a depreciation increases sales (price advantage) but also increases costs (imported inputs). It links the two effects to profit, demonstrating cause‑effect and recognising that the outcome is conditional on cost structure.