Edexcel IGCSE Economics 2.2.3 Exchange Rates Questions

Use exchange-rate questions to convert currencies, shift currency supply or demand and explain effects on imports, exports and the current account.

Exam points

Calculate foreign-currency prices from exchange rates, showing working and units.
Shift supply or demand for a currency and label the new rate and quantity.
Explain how appreciation or depreciation changes export and import demand.

Covered syllabus points

2.2.3.a Exchange rates 2.2.3.b Factors affecting supply and demand of currencies 2.2.3.c Appreciation 2.2.3.d Depreciation

[Maximum number: 2]

Rachel buys a t-shirt for 1000 Kenyan shillings (KES) when she is on holiday.
The exchange rate is £ 1=137.73 KES.

Calculate, to two decimal places, the price in sterling ( £ ) of Rachel's t-shirt. You are advised to show your working.

[Maximum number: 4]

(a)

Which one of the following is a rise in the value of an exchange rate in a floating exchange rate system?

Appreciation

Depreciation

Revaluation

Devaluation

[ 1 ]

(b)

Figure 3 shows the supply of and demand for UK pounds ( £ ) and the equilibrium exchange rate against the US dollar ($).

Using the diagram below, draw the likely effect of a decrease in imports from the US on the equilibrium exchange rate of the UK pound ( £ ) against the US dollar ($). Label the new curve, the new equilibrium exchange rate and the new equilibrium quantity.

Figure 3

[ 3 ]

[Maximum number: 9]

In 2020, 2\% of US exports went to Australia. The main categories of goods exported included machinery, vehicles, medical instruments and aircraft. The US dollar ($) depreciated against the Australian dollar (AUD) in 2020.

With reference to the data above and your knowledge of economics, assess the likely impact on the demand for US exports to Australia after the depreciation of the US dollar.

AO2 (3 marks)/AO3 (3 marks)/AO4 (3 marks)

AO2 and AO3

- A depreciation is where the value of currency falls relative to another currency

- A depreciation of the US dollar against the Australian dollar may result in an increase in the amount of exports of goods between the US and Australia

- This is because US exports are now cheaper to purchase as fewer Australian dollars are required to be exchanged for US dollars

- This could result in more exports of machinery, vehicles, medical instruments and aircraft between the two countries

- This could further improve the trade balance between the US and Australia if more exports are traded compared to imports

A04

- However, a depreciation of the US dollar may not result in an overall increase in exports of goods between the US and Australia

- The impact will depend on the size and duration of the depreciation

- The impact will also depend on PED for US exports

- The amount of goods traded between the two countries will not just depend on the exchange rate between the US and Australia

- The quality of US exports is a factor in whether Australia will purchase more US made goods, not just the exchange rate

(9)

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-3

- Demonstrates basic knowledge and understanding by developing relevant points. Limited application of economic terms, concepts, theories and calculations (AO2).

- Information presented will lack selectivity and organisation. Interpretation of economic information will be limited, with a lack of analysis of issues (AO3).

- Only offers one viewpoint, meaning there is an unbalanced and incomplete evaluation, showing limited understanding and awareness (AO4).

Level 2

4-6

- Demonstrates partial knowledge and understanding by developing relevant points. Partial application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate some selectivity and organisation. Interpretation of economic information will be good, with some analysis of issues (AO3).

- Offers more than one viewpoint but the argument may lack balance, leading to an evaluation that may not demonstrate full understanding and awareness (AO4).

Level 3

7-9

- Demonstrates clear knowledge and understanding by developing relevant points. Appropriate application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate excellent selectivity and organisation. Interpretation of economic information will be excellent, with a thorough analysis of issues (AO3).

- Offers more than one viewpoint. The argument is well balanced and coherent, leading to an evaluation that demonstrates full understanding and awareness (AO4).

[Maximum number: 3]

Figure 3 shows the supply of and demand for UK pounds ( £ ) and the equilibrium exchange rate against the US dollar ($).

Figure 3

[Maximum number: 1]

Which one of the following is a rise in the value of an exchange rate in a floating exchange rate system?

Appreciation

Depreciation

Revaluation

Devaluation

All question bank results loaded

Covered syllabus points

Question 1

Question 2

Question (a)

Question (b)

Question 3

Question 4

Question 5