6.4 Exchange rates

a) With the help of a diagram(s), explain two causes of an appreciation of an exchange rate and consider whether an appreciation of a country\'s exchange rate is likely to reduce its real output.

a) With the help of a diagram, explain two ways in which a fall in the balance of trade in goods may affect the value of a floating exchange rate and consider the extent to which a change in the relative rate of interest between two countries may have a greater impact on the exchange rate. [8]

b) Assess whether the depreciation of an exchange rate is always beneficial to an economy. [12]

a) Explain what is meant by a depreciation of the exchange rate and consider whether a depreciation is likely to increase domestic real output. [8]

a) With the help of a diagram, explain what is meant by an appreciation of a floating exchange rate and consider whether a country can only benefit from the appreciation of its currency. [8]

a) Explain, with the use of a diagram(s), two factors that could bring about a depreciation in the value of a country's exchange rate in a freely floating exchange rate system. [8]

An economy adopts a freely floating exchange rate.

a) Explain how this economy's exchange rate is likely to be affected when its inflation rate is much higher than inflation rates in its trading partners. [8]

a) Explain why a fixed exchange rate could cause difficulties for a country that has one. [8]

a) With the aid of a diagram, explain how a central bank intervenes to maintain a fixed exchange rate when the economy is experiencing a current account deficit on its balance of payments. [8]

b) Discuss whether expenditure-reducing policies are likely to reduce the current account deficit on the balance of payments for an economy with a floating exchange rate. [12]

a) With the aid of a diagram(s), explain one demand factor and one supply factor that would cause the value of a currency in a floating exchange rate system to depreciate. [8]

b) Discuss how likely it is that monetary policy would be successful in reducing inflation in an economy with a floating exchange rate. [12]

a) Explain, with the aid of a diagram, one demand factor and one supply factor that can cause the depreciation of a foreign exchange rate. [8]

b) 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. [12]