Pearson Edexcel International GCSE Economics: Exchange rates: rises and falls (4EC1) – 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 section 2.2.3 (Exchange rates) of the Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3, February 2026, which has a single tier of entry. The countries, currencies and figures are invented. Country C uses the cor and Country D uses the dar. Read the study guide or the revision notes first if you need to. The Edexcel IGCSE Economics hub and the printable checklist list the rest of the course.

Questions

1. Define the term exchange rate. [2]

2. In this question 1 cor = 4.00 dar.

(a) Calculate the price in dar of an item that costs 25 cor. [1] (b) Calculate the price in cor of an item that costs 60 dar. [1] (c) State the value of 1 dar in cor. [1]

3. Explain two factors that could increase the demand for the cor. [4]

4. The table shows the market for the cor, with the price in dar per cor and quantities in millions of cor per day.

Rate (dar per cor)	Demand for cor	Supply of cor
1.0	90	30
1.5	75	45
2.0	60	60
2.5	45	75
3.0	30	90

(a) State the equilibrium exchange rate and the quantity of cor traded. [1] (b) Demand for the cor rises by 30 million at every rate. Find the new equilibrium rate and quantity. [2] (c) Find the percentage change in the cor’s exchange rate and name this type of change. [2]

5.

(a) Distinguish between appreciation and revaluation of a currency. [2] (b) State what is meant by devaluation. [1]

6. The cor depreciates from 1 cor = 2.0 dar to 1 cor = 1.6 dar.

(a) Calculate the dar price of a Country C good that costs 500 cor, before and after the change. [2] (b) Calculate the percentage change in this dar price. [1] (c) Calculate the cor price of a Country D good that costs 600 dar, before and after the change. [2]

7. Explain how a depreciation of a country’s currency may improve its current account. [6]

8. Country C exports machines priced at 400 cor and imports pumps priced at 100 dar. The rate moves from 1 cor = 2.0 dar to 1 cor = 2.5 dar. Before the change Country C exports 10,000 machines and imports 30,000 pumps. Price elasticity of demand for the machines is 1.2 and for the pumps is 0.5.

(a) Calculate the dar price of a machine before and after the change. [1] (b) Calculate the quantity of machines exported after the change and the new export earnings in cor. [2] (c) Calculate the cor price of a pump before and after the change. [1] (d) Calculate the quantity of pumps imported after the change and the new import spending in cor. [2] (e) Calculate the balance (exports minus imports) before and after the change. [2]

9. Explain why a depreciation might make a current account deficit larger. [4]

10. Explain how currency speculators could cause the cor to depreciate. [4]

11. Explain one benefit and one drawback of an appreciation of the cor for Country C. [4]

12. “A lower exchange rate is always good for a country with a current account deficit.” Evaluate this statement. [8]

Answers

1. The amount of one currency [1] needed to buy a unit of a different currency [1], for example how many dar are needed to buy one cor. [2] Examiner insight: A definition needs the idea of two currencies. “The value of money” alone is too vague to be credited.

2. (a) 25 × 4.00 = 100 dar [1]. [1] (b) 60 ÷ 4.00 = 15 cor [1]. [1] (c) 1 ÷ 4.00 = 0.25 cor [1]. [1] Examiner insight: Show the operation you used, so that your method is visible even if a slip occurs in the final figure.

3. Two factors, each with a developed reason (a third acceptable factor is speculators expecting the cor to rise, so they buy it now).

• Higher interest rates in Country C [1]: foreign savers want the higher return, so they buy cor to deposit in Country C banks, raising demand [1].
• Higher foreign demand for Country C’s exports [1]: foreign buyers must buy cor to pay the exporters, raising demand [1]. [4] Examiner insight: Each factor needs a link to the currency market. Saying “exports increase” without saying that foreigners must buy the cor stops short of the explanation.

4. (a) The curves cross at 2.0 dar per cor and 60 million cor [1]. [1] (b) New demand: 120, 105, 90, 75, 60 at rates 1.0 to 3.0. Supply equals new demand at 2.5 [1], where both are 75 million cor [1]. [2] (c) (2.5 − 2.0) ÷ 2.0 × 100 [1] = 25% appreciation [1]. [2] Examiner insight: In a diagram or table question, give both the rate and the quantity. For the percentage, divide the change by the starting rate.

5. (a) An appreciation is a rise in the value of a currency caused by market forces (demand and supply) [1]. A revaluation is a rise chosen by the government or central bank when it changes a set exchange rate [1]. [2] (b) Devaluation is a deliberate fall in the value of a currency, set by the government or central bank [1]. [1] Examiner insight: The two terms differ in cause, so the answer should state the cause for both. Repeating “a rise in value” for each does not separate them.

6. (a) Before: 500 × 2.0 = 1,000 dar [1]. After: 500 × 1.6 = 800 dar [1]. [2] (b) (800 − 1,000) ÷ 1,000 × 100 = −20% [1]. [1] (c) Before: 600 ÷ 2.0 = 300 cor [1]. After: 600 ÷ 1.6 = 375 cor [1]. [2] Examiner insight: A fall in the home currency makes exports cheaper abroad and imports dearer at home. Check the direction of your answers against that before moving on.

7. A model chain, one mark per developed link:

• A depreciation lowers the price of exports in foreign currency [1].
• Foreign buyers therefore demand a larger quantity of exports [1].
• Export earnings rise if demand is elastic [1].
• The price of imports in the home currency rises [1].
• Households and firms buy a smaller quantity of imports [1].
• Exports minus imports improves, so the current account moves towards surplus or the deficit shrinks, provided demand is elastic enough [1]. [6] Examiner insight: Answers gain credit for a clear sequence from the exchange rate to prices, to quantities, to the balance. Stating the conclusion without the middle steps leaves the reasoning unexplained.

8. (a) Before: 400 × 2.0 = 800 dar. After: 400 × 2.5 = 1,000 dar [1]. [1] (b) Price rises 25%, so quantity falls 1.2 × 25% = 30% [1]. New quantity 7,000 machines; earnings 7,000 × 400 = 2,800,000 cor [1]. [2] (c) Before: 100 ÷ 2.0 = 50 cor. After: 100 ÷ 2.5 = 40 cor [1]. [1] (d) Price falls 20%, so quantity rises 0.5 × 20% = 10% [1]. New quantity 33,000 pumps; spending 33,000 × 40 = 1,320,000 cor [1]. [2] (e) Before: 10,000 × 400 − 30,000 × 50 = 4,000,000 − 1,500,000 = 2,500,000 cor [1]. After: 2,800,000 − 1,320,000 = 1,480,000 cor [1]. The balance has fallen by 1,020,000 cor. [2] Examiner insight: Work in one currency throughout. Convert the pump price into cor before you multiply, and label the unit on each answer.

9. A model answer:

• A depreciation raises the price of imports in the home currency [1].
• If demand for imports is inelastic, the quantity bought falls by a smaller percentage than the price rises [1].
• Spending on imports therefore rises [1].
• If demand for exports is also inelastic, export earnings rise by little, so the extra import spending can outweigh the gain and the deficit widens [1]. [4] Examiner insight: The explanation turns on elasticity, so name it and say whether it is higher or lower than one. A claim that “imports cost more” alone does not explain a larger deficit.

10. A model answer:

• Speculators trade currencies to make a profit from changes in the rate [1].
• If they expect the cor to fall in value, they sell cor now [1].
• This raises the supply of cor on the currency market (the supply curve shifts right) [1].
• The equilibrium rate falls, which may make the expected fall happen [1]. [4] Examiner insight: Name the curve that moves and the direction. If you say “demand falls” when speculators sell, the diagram will not match the explanation.

11. One benefit and one drawback, each developed.

• Benefit: imports become cheaper in cor [1], so consumers can buy more for the same money and firms that import materials have lower costs [1].
• Drawback: exports become dearer in dar [1], so foreign demand for them falls and exporters sell less, earn less and may cut jobs [1]. [4] Examiner insight: Match each effect to the right group. Cheaper imports help consumers and importers; dearer exports hurt exporters.

12. Points for the statement (up to 4):

• A lower rate makes exports cheaper abroad [1] and imports dearer at home [1], so exports rise and imports fall [1].
• If demand is elastic, export earnings rise and import spending falls, so the deficit shrinks [1]. Points against (up to 3):
• If demand for imports and exports is inelastic, the import bill can rise more than export earnings, so the deficit widens [1].
• Firms that rely on imported materials face higher costs, which can cancel their gain [1].
• It can take time for buyers to change habits, so the effect may be slow [1]. A judgement that says what the outcome depends on, such as elasticity, the size of the fall and the time allowed [1]. Credit is for developed points, up to [8]. Examiner insight: “Always” is a strong word. Answers gain credit when they show a case where the statement fails, with the reason, and then reach a judgement that depends on that case.

Where marks are usually lost

• Writing a definition of an exchange rate that never mentions a second currency.
• Multiplying when the conversion needs division.
• Working out a percentage change from the new figure instead of the starting one.
• Moving the wrong curve in a currency diagram, or not labelling the new equilibrium.
• Describing the exports effect without saying the price changes in the foreign currency.
• Treating a fall in import quantity as a fall in import spending.
• Saying a depreciation always cures a deficit, with no mention of elasticity.
• Confusing depreciation (market) with devaluation (government decision).

Next steps

• Read the revision notes.
• Review the study guide.
• Return to the Edexcel IGCSE Economics hub and the printable checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Pearson Edexcel International GCSE in Economics (4EC1) specification, Issue 3, February 2026, published by Pearson Education Limited, section 2.2.3.