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While the pound’s fall is bad for UK companies, the FTSE 100 is mostly made up of multinationals that benefit from the slump in sterling
THE FTSE 100 soared above 7,500 points when the London stock market opened this morning, following the hung parliament election result.
While the pound’s fall is bad for UK companies, the FTSE 100 is mostly made up of multinationals that benefit from the slump in sterling.
The FTSE 100 rose sharply when the London stock exchange opened this morning
That’s because they generally earn their money abroad, so a weaker pound means profits earned abroad are worth more when converted back into sterling.
The FTSE 250 – which is mostly made up of UK stocks – fared worse this morning, falling by around 0.5 per cent.
Shares in UK banks and housebuilders have suffered particularly badly, with Lloyds Bank, RBS and Barclays all trading down this morning following the general election result.
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Jason Hollands, managing director of investment management group Tilney, said: “Large FTSE 100 companies are of course highly sensitive to movements in the exchange rate because over 70 per cent of their earnings are from outside of the UK.
“That means that when the pound weakens and the businesses convert their profits back into sterling, the weaker pound makes those profits and earnings go up in pound terms.
“That’s why the FTSE 100 is responding well to the result,” he said.
The FTSE 250, which is mostly made up of domestic stocks, took a hit this morning
A graph on a trader’s screen shows the fall of pound sterling that occurred when the first general election exit poll was released last night
The FTSE rose this morning when the London stock exchange opened
Over the past 24 hours, the pound has fallen against 158 global currencies, including against the euro from 1.153 to 1.134, and the US dollar from 1.293 to 1.271.
But the fall in the pound isn’t as dramatic as in the aftermath of the Brexit vote last June, when it plunged more than 10 per cent.
The general election has ended in a hung parliament after the Tories failed to win a majority.
The Conservatives were hoping to far exceed the 326 seats needed to form a government on their own.
What is a hung parliament?
WHAT happens if no party wins a General Election majority? Here’s the lowdown…
A hung parliament is declared if no party wins an outright majority by securing more seats than all the other parties combined.
In the UK a party must win 326 seats to secure an absolute majority.
Since 1929 there have only been two UK General Elections that resulted in hung parliaments – in 1974 and 2010.
When was the last hung parliament in the UK?
In 2010 David Cameron’s Conservatives formed a coalition with the Liberal Democrats, which lasted for the five year fixed-term parliament.
That year the Conservative’s won 306 seats, requiring the Lib Dem’s 57 seats for an absolute majority.
In 2015 the Conservatives won 331 seats.
What happens if no party wins a General Election majority?
The party with the most seats can choose to either form a coalition or rule as a minority government.
If the winning party decides to rule as a minority government it will be reliant on the support of smaller parties to pass legislature.
Or it can form a coalition with another party or parties so the combined number of seats amount to an absolute majority.
If both options fail parliament could be dissolved and a fresh election called.
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