Exchange Rates

Explain, with the aid of a diagram, one demand factor and one supply factor that can cause the depreciation of a foreign exchange rate.

Discuss whether an appreciation of a country’s foreign exchange rate is likely to cause both a rise in inflation and a decrease in employment in its economy.

Explain how a government intervenes to manage the value of its currency in the foreign exchange market.

Discuss the likely effects of the devaluation of the yuan on both the Chinese economy and countries that trade with China.

Show how exchange rates are determined in a freely floating system. Explain how a high rate of inflation in an economy can lead to depreciation in that economy’s exchange rate. Use a diagram to support your answer.

Discuss the advantages and disadvantages of a freely floating exchange rate. Consider whether on balance it is preferable to a fixed rate system.

With the help of a diagram, explain how exchange rates are determined in a free market and why an expected rise in interest rates in the US would cause the value of the US dollar to rise.

Discuss the probable impact of this exchange rate rise on the US economy and assess whether it is likely to benefit this economy overall.

Explain how a declining exchange rate and a high rate of inflation in an economy might affect that economy’s terms of trade.

Discuss the advantages and disadvantages to an economy of a fall in that economy’s terms of trade and consider whether the overall effects are likely to be beneficial.

Explain two ways in which the fall in the value of the krona between the end of 2007 and the end of 2008 might have caused the rise in the rate of inflation shown in Fig. 2.

Explain the factors that determine whether the devaluation of a currency such as the Icelandic krona would turn a current account deficit into a surplus.

Consider whether the costs to an economy of managing its exchange rate outweigh the benefits of such a system.

Using Table 1.1, calculate the percentage fall in the nominal value of the rouble against the US dollar between 2013 and 2015.

Explain the difference between a nominal exchange rate and a real exchange rate.

Explain, using a demand and supply diagram, how the fall in the price of a barrel of oil contributed to a decline in the value of the rouble.

Analyse the likely impact the depreciation of the rouble could have on the Russian economy.

Explain why the Turkish lira depreciated from September 2021.

Consider the extent to which producers in Turkey are likely to have been affected by the depreciation of the lira on the foreign exchange market from September 2021.

Assess whether Mr Erdoğan’s economic policies have had a beneficial impact on Turkey’s economy since 2020.

State what the upward trend shown in Fig. 1.1 means has happened to the value of the peso between 2016 and 2018.

The central bank of Argentina sold US dollars from its foreign exchange reserves to a value of US$1.5 billion on one day in May 2018.

With the help of a supply and demand diagram, explain what effect you would expect this intervention to have on the value of the Argentine peso.

The extract also states that persistent high inflation represents a risk to the peso.

Explain one way in which persistent high inflation represents a risk to the peso.

Use aggregate demand and aggregate supply analysis to explain how the recent interest rate rises might help Argentina to reduce its annual rate of inflation and achieve its target.