International economics

Table of Contents

1. Topic pack - International economics - introduction
2. Section 3.1 International trade (notes)
3. Section 3.1 International trade (questions)
4. Section 3.1 International trade - simulations and activities
5. Section 3.2 Exchange rates (notes)
6. Section 3.2 Exchange rates - questions
7. Section 3.2 Exchange rates - simulations and activities
   1. DragIT - exchange rate determination (1)
   2. DragIT - Exchange rate determination (2)
8. Section 3.3 Balance of payments - notes
9. Section 3.3 Balance of payments - questions
10. Section 3.4 Economic integration - notes
11. Section 3.4 Economic integration - questions
12. Section 3.5 Terms of trade - notes
13. Section 3.5 Terms of trade - questions
14. Print View

DragIT - Exchange rate determination (2)

In a free foreign exchange market, the rate of exchange is determined by demand and supply. This is illustrated in the following diagrams, which show the demand and supply of pounds against the US dollar.

In the first diagram, you can drag the supply curve to see the impact of changes in supply, while in the second you can drag the demand curve.

NB For the sake of example, we have used the demand for and supply of sterling - the UK currency.

1

Exchange rate changes Match the following events to the relevant shifts in the curves. (N.B. Bear in mind that we are looking at changes to the UK currency - sterling) a) An increase in UK exports Choose... Supply shift left Supply shift right Demand shift right Demand shift left b) An increase in UK imports Choose... Supply shift left Supply shift right Demand shift right Demand shift left c) A decrease in UK exports Choose... Supply shift left Supply shift right Demand shift right Demand shift left d) A decrease in UK imports Choose... Supply shift left Supply shift right Demand shift right Demand shift left Yes, that's correct. Well done. Changes in exports will affect the demand for sterling, while the level of imports will affect supply.No, that's not right. Changes in exports will affect the demand for sterling, while the level of imports will affect supply.Your answer has been saved.

2

Exchange rate changes Match the following events to the changes they will cause to the demand and supply of sterling. a) An increased flow of investment into the UK Choose... Supply shift right Demand shift right Supply shift left Demand shift left b) A decreased flow of investment into the UK Choose... Supply shift right Demand shift right Supply shift left Demand shift left c) An increased flow of investment from the UK to other countries Choose... Supply shift right Demand shift right Supply shift left Demand shift left d) A decreased flow of investment from the UK to other countries Choose... Supply shift right Demand shift right Supply shift left Demand shift left Yes, that's correct. Well done. Investment flows into the UK will affect demand for sterling, while investment flows out of the UK will affect supply.No, that's not right. Try again. Investment flows into the UK will affect demand for sterling, while investment flows out of the UK will affect supply.Your answer has been saved.