What you’ll learn6 learning objectivesChoose one objective for a focused lesson, or study the complete topic.4.5.1Floating exchange rates• Floating exchange rates are determined by demand and supply for a currency• Currency depreciation and appreciation describe decreases and increases in currency value• Diagram: exchange rate determination and changes in equilibrium in a floating exchange rate system• Calculation: using exchange rates to find the price of a good in different currenciesSyllabus objective4.5.2Demand and supply for currencies• Currency demand and supply change with exports, imports, FDI, portfolio investment, remittances, speculation, inflation rates, interest rates, growth rates, and central bank intervention• Calculation: changes in currency value from dataSyllabus objective4.5.3Consequences of exchange rate changes• Exchange rate changes affect inflation, growth, unemployment, current account balance, and living standards• Diagram: AD/AS showing possible macroeconomic consequences of exchange rate changesSyllabus objective4.5.4Fixed exchange rates• Fixed exchange rates can involve devaluation and revaluation• Governments and central banks maintain fixed rates through intervention• Diagram: how a fixed exchange rate is maintainedSyllabus objective4.5.5Managed exchange rates• Managed exchange rates can become overvalued or undervalued• Diagram: exchange rate determination and changes in equilibrium in a managed exchange rate systemSyllabus objective4.5.6(HL)—Fixed versus floating exchange rate systems• HL evaluation compares advantages and disadvantages of fixed and floating exchange rate systems• Evaluation considers stability, flexibility, policy independence, and external balanceSyllabus objective
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