CAIE A-Level Economics 11.2.2 Fixed and Managed Exchange Rates

CAIE A-Level Economics 11.2.2 Fixed and Managed Exchange Rates
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise showing how central banks maintain fixed rates or bands through reserves, interest rates and controls and comparing these interventions with a managed float under market…

How this is tested

  • draw excess currency supply or demand at the fixed rate and measure the intervention required
  • explain reserve sales, currency purchases or interest-rate changes used to defend the rate
  • distinguish a fixed peg from a managed float where markets set the rate but authorities intervene

Question 29

[Maximum number: 1]

A country with fixed exchange rates faces a surplus on its current account.
Which policy is most desirable to maintain the fixed exchange rate?

A

an increase in subsidies given to exporters

B

the imposition of trade barriers on the import of non-essential goods

C

the sale of foreign currencies in the foreign exchange market

D

the use of expansionary monetary policy