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6.3 Foreign exchange rates

Topic 6.3 - Foreign exchange rates

This section of the Cambridge IGCSE Economics (0455) syllabus covers the following topics. Click on the relevant hyperlink below to access the InThinking resources for this part of the course.

SectionTopicGuidance
6.3.1Definition of foreign exchange rate 
6.3.2

Reasons for buying and selling foreign currencies

Topic 6.3.2 (Reasons for buying and selling foreign currencies) is new content
  • Trade in goods and services
  • Speculation
  • Government intervention in currency markets
  • Payment of profit, interest and dividends between countries
  • Workers’ remittances
  • Investment in capital goods between countries
6.3.3

Determination of foreign exchange rate in foreign exchange market

For Topic 6.3.3, the entry or departure of MNCs has been removed from the syllabus as a determinant of foreign exchange rates. 

Also note that definitions of “appreciation”and “depreciation” have been added.

The demand for and supply of a currency in the foreign exchange market and the determination of the equilibrium foreign exchange rate

  • sefinitions of floating exchange rate, appreciation and depreciation
  • The demand for and supply of a currency
  • The determination of the equilibrium foreign exchange rate
  • Causes of foreign exchange rate fluctuations:
    – changes in demand for exports and imports
    – changes in the interest rate
    – speculation
6.3.4Consequences of changes in foreign exchange rates

Effects of changes in foreign exchange rates on:

  • Prices
  • Demand for exports
  • Demand for imports

Other InThinking resources

Click on the hyperlinks below to access other InThinking resources for this topic:

Return to the Topic 6 - International trade and globalisation homepage

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