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Cambridge IGCSE Economics practice

Paper 2 structured question: Foreign exchange rates

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Foreign exchange rates

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Paper 2Structured Questions1 marks

Understanding the dynamics of foreign exchange rates is essential for international trade.

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Factors Influencing Foreign Exchange Rates

Foreign exchange rates fluctuate due to various factors including changes in export and import demand, interest rates, speculation, and the activities of multinational corporations (MNCs).

  1. a

    State one factor that causes fluctuations in foreign exchange rates.

    Aim for approximately 1 distinct marking point.

    [1]

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Paper 2 structured question: Foreign exchange rates

Paper 2Structured Questions4 marks

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Interest Rates and Currency Value

Interest rates influence the flow of capital into and out of a country, affecting the value of its currency. Higher interest rates typically attract foreign investment, leading to currency appreciation.

  1. a

    Explain how higher interest rates can lead to currency appreciation.

    Aim for approximately 4 distinct marking points.

    [4]