• 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 currencies
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Start with the concept explanation, then practise to create mastery evidence.
2
Learning objective
4.5.2—Demand and supply for currencies
New
• 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 data
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Mistakes
Start with the concept explanation, then practise to create mastery evidence.
3
Learning objective
4.5.3—Consequences of exchange rate changes
New
• Exchange rate changes affect inflation, growth, unemployment, current account balance, and living standards
• Diagram: AD/AS showing possible macroeconomic consequences of exchange rate changes
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Mistakes
Start with the concept explanation, then practise to create mastery evidence.
4
Learning objective
4.5.4—Fixed exchange rates
New
• Fixed exchange rates can involve devaluation and revaluation
• Governments and central banks maintain fixed rates through intervention
• Diagram: how a fixed exchange rate is maintained
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Mistakes
Start with the concept explanation, then practise to create mastery evidence.
5
Learning objective
4.5.5—Managed exchange rates
New
• Managed exchange rates can become overvalued or undervalued
• Diagram: exchange rate determination and changes in equilibrium in a managed exchange rate system
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Mastery
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Mistakes
Start with the concept explanation, then practise to create mastery evidence.
6
Learning objective
4.5.6 (HL)—Fixed versus floating exchange rate systems
New
• HL evaluation compares advantages and disadvantages of fixed and floating exchange rate systems
• Evaluation considers stability, flexibility, policy independence, and external balance
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Attempts
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Mistakes
Start with the concept explanation, then practise to create mastery evidence.