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12 questions on Exchange Rate Systems (AQA specification 2.6.4) from the A-Level Economics papers, 2018–2025. Every question links to the official mark scheme at the page its answer begins on.
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Using the data in Extract A (Figure 1), calculate how the value of the Norwegian krone has changed compared to the Singapore dollar between 26 October 2021 and 29 May 2023. Give your answer as a percentage and to one decimal place.
Explain how the data in Extract A (Figure 2) show that Singapore may have benefitted from managing its exchange rate compared to Germany and Norway.
Extract B (lines 6–7) states: ‘Some analysts hope that, before long, the currency will start to appreciate which could help Norway reduce inflation.’ With the help of a suitable diagram, explain how an appreciation of the krone could help Norway reduce inflation.
Extract C (lines 1–2) states: ‘An economy that has seen considerable success by intervening in the foreign exchange market to manage its currency is Singapore.’ Using the data in the extracts and your knowledge of economics, assess the view that an economy is likely to perform better with a managed exchange rate rather than a freely floating exchange rate.
Assess the view that floating exchange rates are always better than fixed exchange rates.
Explain how a government or central bank can intervene to prevent the value of its currency rising.
Explain how an appreciation of its currency is likely to affect a country’s rate of economic growth.
2.6.4 Exchange Rate Systems · 2.3.1 Growth and the Economic Cycle
Evaluate the costs and benefits for a country of joining a currency union, such as the eurozone.
Explain why the value of a currency may fall in a floating exchange rate system.
Assess the view that a depreciation of the pound against other currencies is likely to improve the UK’s macroeconomic performance.
Using the data in Extract A (Figure 1), calculate the change in the effective exchange rate index, as a percentage, between November 2015 (point A) and November 2016 (point B). Give your answer to two decimal places.
Extract C (lines 8–9) states ‘Trade deficits and surpluses may be self-correcting in a floating exchange rate system.’ With the help of a diagram showing the supply of and demand for a currency, explain how a floating exchange rate may help to correct a trade surplus.
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