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CAIE A-Level Economics 11.2.2 Fixed and Managed Exchange Rates

Practise showing how central banks maintain fixed rates or bands through reserves, interest rates and controls and comparing these interventions with a managed float under market…

Syllabus
2026–2028
Course
Economics 9708
Level
A2

Exam points

  • draw excess currency supply or demand at the fixed rate and measure the intervention required
  • explain reserve sales, currency purchases or interest-rate changes used to defend the rate
  • distinguish a fixed peg from a managed float where markets set the rate but authorities intervene

11.2.2—Fixed/managed exchange rates question 1

[Maximum number: 1]

A country with fixed exchange rates faces a surplus on its current account.
Which policy is most desirable to maintain the fixed exchange rate?

A

an increase in subsidies given to exporters

B

the imposition of trade barriers on the import of non-essential goods

C

the sale of foreign currencies in the foreign exchange market

D

the use of expansionary monetary policy

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