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Edexcel IGCSE Economics 2.2.3 exchange rates

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

Syllabus
First assessment 2019
Course
Economics 4EC1

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 rates2.2.3.b Factors affecting supply and demand of currencies2.2.3.c Appreciation2.2.3.d Depreciation

2.2.3 Exchange rates question 1

[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.

2.2.3 Exchange rates question 2

[Maximum number: 4]

Question (a)

(a)

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

A

Appreciation

B

Depreciation

C

Revaluation

D

Devaluation

[ 1 ]

Question (b)

(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

Figure 3

[ 3 ]
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