CAIE A-Level Economics A2 11.2 Exchange Rates Questions
Practise interpreting exchange rate measures, fixed and managed systems, devaluation terms, capital flows and J-curve effects.
- Syllabus
- 2026–2028
- Course
- Economics 9708
- Level
- A2
Exam points
- interpret currency tables and trade-weighted measures to identify exchange rate changes
- explain central bank intervention in fixed or managed systems using demand and supply
- apply Marshall-Lerner and J-curve logic to current account outcomes
Covered syllabus points
Question 1
[Maximum number: 1]
What is a trade-weighted exchange rate?
A
the price of one currency against a basket of other currencies
B
the price of one currency in terms of another
C
the price of one currency in terms of its real purchasing power
D
the price of one currency being determined by state intervention
A
Question 2
[Maximum number: 1]
A country with demand-pull inflation decides to fix its exchange rates against other currencies above the purchasing power parities.
What is likely to happen to the macroeconomic indicators shown?
interest rate
inflation rate
current account
balance
decrease
decrease
improve
decrease
increase
worsen
increase
decrease
worsen
increase
increase
improve
C
Question 3
[Maximum number: 1]
A central bank officially lowers the price of its currency relative to an agreed rate in terms of other currencies.
What type of central bank policy is this?
A
appreciation
B
depreciation
C
devaluation
D
revaluation
C
Question 4
[Maximum number: 1]
An increase or decrease in exchange rates can take place in both a floating and a fixed exchange rate system but different terminology is used for each system.
What is the correct terminology?
floating rate
decreases
fixed rate
increases
depreciation
appreciation
depreciation
revaluation
devaluation
appreciation
devaluation
revaluation
B
Question 5
[Maximum number: 1]
An economy has a large surplus on the current account of its balance of payments. It revalues its currency. The current account of the balance of payments becomes a greater surplus in the short run. In the long run the surplus becomes smaller and eventually becomes a deficit.
What is the sum of the price elasticities of imports and exports in the short run and in the long run?
short run
long run
greater than 1.0
greater than 1.0
greater than 1.0
less than 1.0
less than 1.0
greater than 1.0
less than 1.0
less than 1.0
C
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