CAIE A-Level Economics 6.4.4 Exchange Rate Changes

CAIE A-Level Economics 6.4.4 Exchange Rate Changes
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise shifting currency demand or supply to explain appreciation and depreciation from trade, inflation, interest rates, tourism, speculation and cross-border capital flows.

How this is tested

  • shift currency demand for exports, tourism or inward capital and supply for imports or outflows
  • link higher relative inflation to weaker competitiveness, lower currency demand and depreciation
  • compare trade-flow pressure with interest differentials and speculative capital when judging size

Question 30

[Maximum number: 1]

Both the US and the EU operate in floating exchange rate markets.
The rate of exchange fluctuated greatly during the period shown.

Table for Question 30 — CAIE A-Level Economics

What would explain the changes in the US dollar-euro rate of exchange?

A

changes in the supply and demand for dollars and euros in the foreign exchange market

B

continuous appreciation of the US dollar throughout the period

C

continuous depreciation of the US dollar throughout the period

D

restraints placed by trade agreements on the rate of exchange