CAIE A-Level Economics 11.2.4 Exchange Rate System Changes

CAIE A-Level Economics 11.2.4 Exchange Rate System Changes
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise distinguishing depreciation, appreciation, devaluation and revaluation and tracing how reserves, rates or currency trades move fixed, floating and managed exchange rates.

How this is tested

  • match depreciation and appreciation to floating rates and devaluation and revaluation to fixed rates
  • explain how reserve sales, interest-rate cuts or selling domestic currency can lower a managed rate
  • evaluate fixed versus floating rates through stability, reserves, adjustment and policy freedom

Question 24

[Maximum number: 1]

At present, one unit of a country's currency exchanges for US $ 1.2. The country aims to set its exchange rate equal to US$1.0.

Which combination of government actions in the foreign exchange market must achieve this aim?

A

buying US currency and buying its own currency

B

buying US currency and selling its own currency

C

selling US currency and buying its own currency

D

selling US currency and selling its own currency