Exchange Rates (Edexcel IGCSE Economics): Exam Questions

Figure 3 shows the supply of and demand for UK pounds (£), as well as the equilibrium exchange rate against the euro (€). UK interest rates increased from 4% to 4.25% in March 2023.

Using the diagram below, draw the likely effect of this rise in UK interest rates on the equilibrium exchange rate of the UK pound (£) against the euro (€). Label the new curve, the new equilibrium exchange rate and the new equilibrium quantity.

Figure 3 shows the supply of and demand for the UK pound (£) in terms of US dollars ($) and the equilibrium exchange rate.

Using the diagram below, draw the effects on the exchange rate of the UK pound (£) from an increase in UK exports to the US. Label the new curve, the new equilibrium exchange rate and the new equilibrium quantity.

In October 2017 the currency of the Philippines, the peso, fell to its lowest level against the US dollar in more than 11 years.

Explain one advantage of having a depreciating currency for an economy such as the Philippines.

The UK exports goods to eurozone countries. Using the diagram below, draw the effects of an increase in exports from the UK to the eurozone on the exchange rate of the £. Label the new curve, the new equilibrium exchange rate and the new equilibrium quantity.

In December 2017 the Thai baht appreciated to its highest value in 2 years against the US dollar. The Thai baht is predicted to continue its gradual appreciation in 2018.

Explain one disadvantage of an appreciating currency for an economy such as Thailand.

A country's central bank significantly cuts its interest rate.

Explain how this could affect the supply of the country's currency on the foreign exchange market.

A country's currency depreciates significantly against the currencies of its major trading partners.

Explain how this could affect a domestic manufacturer that imports raw materials from abroad.

A fictional country, Kelvaria, has recently raised its interest rate significantly above the interest rates of its major trading partners, attracting a large inflow of foreign investment.

Analyse the impact of this interest rate rise on Kelvaria's exporters.

The market for South African rand (R) in terms of US dollars ($) is initially in equilibrium, as shown in the diagram below.

South Africa's demand for imported oil from the US rises sharply.

Using the diagram above, draw the likely effect of this increase in oil imports on the equilibrium exchange rate of the rand (R) against the US dollar ($). Label the new curve, the new equilibrium exchange rate and the new equilibrium quantity.

The market for the Japanese yen (¥) in terms of the Australian dollar (A$) is initially in equilibrium, as shown in the diagram below.

Japan's central bank cuts its interest rate significantly below Australia's interest rate. As a result, Australian investors become less willing to move their money into Japan to invest there.

Using the diagram above, draw the likely effect of this change on the equilibrium exchange rate of the yen (¥) against the Australian dollar (A$). Label the new curve, the new equilibrium exchange rate and the new equilibrium quantity.

In 2020, 2% of US exports went to Australia. The main categories of goods exported included machinery, vehicles, medical instruments and aircraft. The US dollar ($) depreciated against the Australian dollar (AUD) in 2020.

With reference to the data above and your knowledge of economics, assess the likely impact on the demand for US exports to Australia after the depreciation of the US dollar.

In 2025, the Swiss franc appreciated by over 12% against other major currencies, driven by its status as a 'safe haven' currency during a period of global economic and political uncertainty. Almost half of Swiss exporting firms say they would consider their exports to the US unprofitable if the franc strengthens much further. At the same time, the stronger franc has lowered the cost of imported raw materials for Swiss firms, allowing many to increase their profit margins even as inflation stays close to zero.

Assess whether this appreciation has been more costly than beneficial for the Swiss economy.

In 2025, the British pound appreciated by 7.46% against the US dollar, rising from a low of $1.2177 in January to a high of $1.3743 in July, with an average exchange rate for the year of $1.319.

Assess whether this appreciation has been more beneficial than costly for UK consumers and businesses.

Since the end of 2020, the Japanese yen has depreciated by 54% against the US dollar, reaching as low as ¥161.62 per dollar in July 2024. This weak yen has helped Japan achieve a record 30 million tourists in 2024 and has supported Japanese exporters in competing with cheaper Chinese products. However, the weaker yen has also raised the cost of imported goods, contributing to inflation that has become Japanese voters' primary economic concern, and has negatively affected GDP, consumption and investment.

Evaluate whether the depreciation of the yen has been beneficial for Japan's economy overall.

In 2024, the Nigerian naira depreciated by 40.9% against the US dollar, closing the year at ₦1,535 per dollar. This contributed to Nigeria's inflation rate reaching 35% by the end of 2024, with food inflation reaching nearly 40%, as the cost of importing raw materials, fuel and fertiliser rose sharply. However, Nigeria's non-oil exports grew by around 20% in the second half of 2023 and by a further 12% in 2024, particularly in agriculture and manufactured goods.

Evaluate whether the naira's devaluation has been beneficial for Nigeria's economy overall.

In December 2023, Argentina's new government devalued the peso by 54% in a single move, followed by smaller monthly devaluations. Monthly inflation initially jumped to 25.5% straight after the devaluation, but annual inflation for 2024 fell to 117.8%, down from 211.4% in 2023. Argentina's trade balance improved by 71.2% over this period, driven by a 16.2% fall in imports while exports fell by only 4.7%, and in 2024 the government recorded its first fiscal surplus in more than a decade.

Evaluate whether Argentina's peso devaluation has been beneficial for the country's economy.