CourseCourseConceptConceptDocumentDocument

IB Economics HL 4.5.1 Floating Exchange Rates Questions

Practise 4.5.1 Floating exchange rates in IB Economics HL by reviewing the concepts and applying them to marked questions.

Syllabus
First assessment 2022
Course
Economics HL
Level
HL

Exam points

  • 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

IB Economics HL 4.5.1 Floating Exchange Rates Questions question 1

[Maximum number: 4]

Country X and Country Y are capable of producing both apples and bananas. Assume a two-country, two-product model.

Country Y has absolute advantage in the production of both apples and bananas, and comparative advantage in the production of bananas.

The market for oranges in Country Z is illustrated on Figure 5.

Figure 5

Figure 5

The domestic demand and supply for oranges are given by the functions

Qd=300−100PQs=−60+60P\begin{aligned} & Q d=300-100 P \\ & Q s=-60+60 P \end{aligned}

where P is the price of oranges in dollars per kilogram ( $\$ per kg ), Q d is the quantity of oranges demanded (thousands of kg per month) and Qs is the quantity of oranges supplied (thousands of kg per month). The world price of oranges is $2\$ 2 per kg.

Due to increased awareness of the possible health benefits of vitamin C , the demand for oranges in Country Z increases by 60000 per month at each price.

Question (a)

(a)

Calculate the quantity of EU€ she will receive for her US $300000\$ 300000.

The EU€ depreciates by 10 % against the US$. Fearing further depreciation of the EU€, Tanya exchanges her EU€ for US$.

[ 1 ]

Question (b)

(b)

Calculate, in US$, the loss made by Tanya as a result of these transactions.

[ 3 ]
All question bank results loaded