O-LEVEL ECONOMICS

REVISION 02

PAPER 2
 Exchange Rate & BOP
1) Explain two reasons/ causes of a fall in a country’s foreign
exchange rate. [4]
Foreign exchange is a market
A fall in Demand & a rise in supply would depreciate a currency
Inflows represent Demand (If export falls demand falls)
Outflow represent supply (if import increases supply increases)
Changes in interest affect currency value; when interest falls,
demand for the currency falls and depreciate and vise versa
Any Question?
Task: Answer one of the following q.

1) Explain two reasons why the value of a country’s exports may be

greater than the value of its imports. [4]
2) Analyse how a rise in a country’s foreign exchange rate worsens its
current account. [6]
3) Analyse how a fall in a country’s foreign exchange rate could
increase economic growth. [6]
4) Analyse how a cut in spending on training and education could
increase a deficit on the current account of the balance of
payments. (6) TB