OCR GCSE Economics - 4.3 - Exchange Rates

What is an exchange rate?

• The rate at which goods are exchanged between two countries

• The price of one nation’s currency in terms of another’s

• How many GBPs you can exchange at Travelex

• The price of goods in terms of a foreign currency

Why do changing exchange rates help one country and hurt the other?

• One side loses purchasing power and the other gains it

• Takes money away from one side and gives it to the other

• Causes war between the two countries

• One country’s government introduces tariffs to protect local industries

If the US $ were to appreciate in relation to the Euro, what effect would this have?

• European consumers would have more purchasing power in the US

• US consumers can buy more European goods and services for fewer US dollar

• US consumers can buy more English goods and services for fewer US dollars

• European tourists to the US will spend more dollars

How does the inflation rate affect currency value/exchange rate?

• Higher inflation leads to depreciating currency & visa versa

• Increasing inflation leads to more favourable exchange rates

• Higher inflation leads to currency appreciation

• Lower inflation leads to more favourable exchange rate

If the Mexican Peso depreciates in relation to the Chinese Yuan, how is Mexico affected?

• Mexico has less purchasing power in Chinese currency

• Mexico benefits from increased purchasing power

• Mexico would have more Chinese investors

• They would be invaded by China

What is likely to cause a rise in a country’s foreign exchange rate?

• A fall in its exports of goods and services

• A fall in its imports of goods and services

• A fall in its inflows of income

• A rise in its outflows of transfers

Which country is the world’s largest importer?

• Russia

• China

• United States of America

• UK

True or False: Having a trade surplus means the country exports more than it imports, while having a trade deficit means the country exports less than it imports.

• True

• False

Trade between countries is NOT dependent on…

• Currency exchange rates

• Demand for a country’s goods

• Social stability

• Interest rates

What is meant by the depreciation of a currency?

• A fall in its external value

• A fall in its internal value

• A rise in its external value

• A rise in its internal value