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Theme 4: A global perspective
4.1 International economics
4.1.8 Exchange rates
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Exchange rates represent the value of one currency in terms of
another
What is one aspect influenced by exchange rates according to the study material?
Trade
Exchange rates
affect the cost of international travel and tourism.
If the exchange rate between USD and EUR is 1:0.88, 1 USD can be exchanged for
0.88
EUR.
How many primary types of exchange rate systems are there?
Three
Match the type of exchange rate system with its characteristic:
Fixed ↔️ Stability and predictability
Floating ↔️ Flexibility to economic shocks
Managed ↔️ Balance between stability and flexibility
Under a fixed exchange rate system,
monetary policy
autonomy is reduced.
A floating exchange rate system allows monetary policy
autonomy
Which economic factor influences exchange rates?
Inflation rates
Higher interest rates in a country can strengthen its
currency
.
Psychological factors such as investor confidence can drive exchange rate
fluctuations
What happens to a country's exports when its currency devaluates?
Exports become cheaper
Exchange rate volatility can deter foreign investment due to increased
uncertainty
.
What is the impact of currency appreciation on exports?
More expensive
Currency appreciation
makes imports cheaper.
Exchange rate volatility can deter foreign investors due to increased
uncertainty
What happens to British exports if the GBP depreciates against the EUR?
They become cheaper
Exchange rates determine the value of one
currency
in terms of another.
Exchange rates influence import and export
prices
Match the type of exchange rate system with its characteristic:
Fixed ↔️ Stability and predictability
Floating ↔️ Flexibility to economic shocks
Managed ↔️ Balance between stability and flexibility
Which exchange rate system uses a fixed peg to another currency or commodity?
Fixed
Hong Kong uses a fixed exchange rate system, pegging its currency to the
USD
Economic factors like inflation and interest rates can influence
exchange rates
.
Order the factors influencing exchange rates by category:
1️⃣ Economic factors
2️⃣ Political factors
3️⃣ Psychological factors
What type of factor is news and sentiment that influences exchange rates?
Psychological
A currency devaluation makes exports
cheaper
Exchange rate volatility encourages foreign investment.
False
How do exchange rates influence international competitiveness?
By affecting export prices
Match the exchange rate scenario with its effect on inflation:
Currency depreciation ↔️ Increases imported goods prices
Currency appreciation ↔️ Decreases imported goods prices
Higher interest rates attract foreign
investment
What is the effect of a stable exchange rate on economic growth?
Reduces investment risks
Factors influencing exchange rates can be categorized into economic, political, and
psychological
factors.
Higher inflation reduces the value of a
currency
.
Why did the USD weaken in 2023 according to the example in the material?
High inflation
Higher interest rates attract foreign
investment
and strengthen the currency.
Higher GDP growth strengthens a country's
currency
.
Match the category of factors influencing exchange rates with their examples:
Economic ↔️ Inflation rates
Political ↔️ Government policies
Psychological ↔️ News and sentiment
Political stability in a country strengthens its
currency
by attracting investment.
What example is given to illustrate the impact of political stability on exchange rates?
Swiss franc
Higher interest rates can weaken a currency.
False
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