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CAIE A-Level Economics 6.4.2 Floating Exchange Rate

Practise showing how currency demand and supply determine a floating rate and evaluating policy independence, automatic adjustment and uncertainty without routine reserve…

Syllabus
2026–2028
Course
Economics 9708
Level
AS

Exam points

  • draw currency demand and supply with equilibrium identifying the floating exchange rate
  • explain policy independence and automatic balance-of-payments adjustment as possible benefits
  • evaluate traded-price uncertainty while distinguishing a float from continual official intervention

6.4.2—Floating exchange rate question 1

[Maximum number: 1]

A country has no controls on transactions in foreign exchange and allows its exchange rate to float freely.

What will always be zero?

A

net inward investment

B

the country's foreign exchange reserves

C

the current account balance of payments position

D

the overall balance of payments position

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