Cambridge International AS and A Level Economics: Floating exchange rates (9708) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover syllabus section 6.4 (Exchange rates), outcomes 6.4.1 to 6.4.5, in the Cambridge International AS and A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 6 is AS Level content, and the syllabus says AS content is assumed knowledge for A Level Paper 3 and Paper 4.

Country E uses the mira and Country A uses the pell. Answers show each creditworthy step with a mark in square brackets, and the bold figure at the end of each answer is the question total. Work through each question on paper before you read the answer, and draw the diagram described in each case. All figures are invented for illustration and are not real statistics. Links: study guide, revision notes, course hub, checklist.

Questions

1. Define an exchange rate. [2]

2. The exchange rate is 1 mira = 3.00 pells. A bicycle frame is priced at 1,800 pells in Country A. An export from Country E is priced at 250 miras. Calculate the price of the frame in miras and the price of the export in pells. [3]

3. The table shows the foreign exchange market for the mira (millions of miras).

Pells per mira	Demand	Supply
2.0	260	100
2.5	220	140
3.0	180	180
3.5	140	220
4.0	100	260

(a) State the equilibrium exchange rate and quantity. [2] (b) Describe the market at 3.5 pells per mira and the likely movement of the rate. [2]

4. The rate moves from 3.00 to 2.70 pells per mira. Calculate the percentage change in the value of the mira, and the percentage change in the value of the pell against the mira. [3]

5. Explain two causes of an appreciation of a floating currency. [4]

6. In question 3 the demand curve is D = 420 − 80r and the supply curve is S = 80r − 60, where r is pells per mira. Demand then rises by 40 at every rate. (a) Calculate the new equilibrium rate and quantity. [2] (b) Calculate the percentage change in the rate and state whether it is an appreciation or depreciation. [2]

7. Traders in the foreign exchange market expect the mira to fall in value. Explain the likely effect on the mira. [3]

8. A firm in Country E imports materials priced at 900 pells per batch. (a) Calculate the cost in miras at 3.00 pells per mira and at 2.50 pells per mira, and the percentage change. [3] (b) An export is priced at 250 miras. Calculate its price in pells after the change to 2.50. [1]

9. Country E’s aggregate demand components (millions of miras) are consumption 540, investment 170, government spending 210, exports 280 and imports 310. A depreciation raises exports to 310 and lowers imports to 290. (a) Calculate aggregate demand and net exports before the change. [2] (b) Calculate aggregate demand after the change. [1] (c) The marginal propensity to withdraw is 0.5. Calculate the multiplier and the change in national income. [3]

10. Using AD/AS analysis, explain the likely effects of an appreciation on real output, the price level and employment. [6]

11. Evaluate the view that a depreciation will always raise real output and employment. [8]

Answers

1. The price of one currency [1] expressed in terms of another, for example pells per mira [1]. [2] Examiner insight: A definition that says “the value of money” without naming a second currency usually earns less than one that states “in terms of another currency”.

2. Frame: 1,800 ÷ 3.00 [1] = 600 miras [1]. Export: 250 × 3.00 = 750 pells [1]. [3] Examiner insight: Showing the divide-or-multiply step lets a slip in the final number be seen for what it is; a bare wrong answer cannot be traced.

3. (a) Demand equals supply at 3.0 [1], quantity 180 million miras [1]. (b) Supply 220 exceeds demand 140, so excess supply of 80 [1]; the rate falls towards 3.0 [1]. [4] Examiner insight: “Excess supply” needs the size read from the table and a stated direction of the rate; naming only one of these leaves a mark unclaimed.

4. (2.70 − 3.00) ÷ 3.00 × 100 [1] = −10%, a depreciation of the mira [1]. Mira per pell moves from 0.3333 to 0.3704, a rise of 11.1% [1]. [3] Examiner insight: The pell’s change is not +10%. Using the inverse rate is the step that separates correct answers from near-misses.

5. Higher foreign demand for Country E exports raises the demand for the currency [1], shifting the demand curve right and raising the rate [1]. Higher interest rates relative to other countries attract short-term deposits [1], raising demand for the currency and moving the equilibrium rate up [1]. [4] Examiner insight: Each cause needs a link to the demand or supply curve and a result. A list of causes with no chain is hard to credit in full.

6. (a) New demand 460 − 80r equals supply 80r − 60 [1], so 160r = 520, r = 3.25 pells per mira, quantity 200 [1]. (b) (3.25 − 3.00) ÷ 3.00 × 100 = +8.3% [1], an appreciation of the mira [1]. [4] Examiner insight: A student who solves the equations but omits the percentage change or the label “appreciation” leaves available marks unclaimed.

7. Traders sell miras to avoid a loss, so the supply of miras increases [1]. The supply curve shifts right and the rate falls [1]. The fall can confirm the expectation and encourage more selling [1]. [3] Examiner insight: Say which curve shifts. “The mira goes down because people think it will” explains little.

8. (a) 900 ÷ 3.00 = 300 miras [1]; 900 ÷ 2.50 = 360 miras [1]; the change is +20% [1]. (b) 250 × 2.50 = 625 pells [1]. [4] Examiner insight: Dividing by the rate for imports and multiplying for exports is the standard check; the two directions should not be swapped.

9. (a) AD = 540 + 170 + 210 + 280 − 310 = 890 [1]; net exports = 280 − 310 = −30 [1]. (b) 540 + 170 + 210 + 310 − 290 = 940 [1]. (c) Multiplier = 1 ÷ 0.5 = 2 [1]; AD rises by 50 [1]; income rises by 50 × 2 = 100 million miras [1]. [6] Examiner insight: Part (c) uses the change in AD, not its level. Showing 940 − 890 makes the method visible.

10. Exports become dearer to foreigners and imports become cheaper [1]. Net exports fall [1], so AD shifts left [1]. Along SRAS, real output falls [1] and the price level falls, or inflation slows [1]. Firms need fewer workers, so employment falls [1]. [6] Examiner insight: Name all three variables asked for. A response that stops at “AD shifts left” has not yet answered the question.

11. A depreciation makes exports cheaper and imports dearer [1]; net exports and AD rise, so output and employment rise [1]. This depends on spare capacity: with few unemployed resources, AD growth raises prices more than output [1], so the claim of “always” fails [1]. Dearer imported inputs shift SRAS left [1], which can reduce or cancel the output gain [1]. If demand for exports and imports is slow to respond, net exports may not improve at first [1]. A supported judgement: the claim is too strong; outcomes depend most on spare capacity and import dependence [1]. [8] Examiner insight: “Evaluate” is better served by a judgement that names the deciding factor than by a longer list of points.

Where marks are usually lost

• Not stating which currency is being priced.
• Mixing up multiply and divide when converting prices.
• Giving the same percentage change for both currencies.
• Treating a change in the rate as a shift of the curve.
• Not naming the curve that shifts.
• Describing AD changes without linking to net exports.
• Forgetting employment, or the price level, when asked for three variables.
• Writing evaluation as a list with no conclusion.

Next steps

• Re-read the revision notes and the study guide.
• Tick off the checklist and visit the course hub.
• Try all the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Economics 9708, syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International), section 6.4 Exchange rates.