OCR GCSE Economics: Exchange rates, globalisation and measuring development (J205) – Revision Notes

These notes condense sections 4.3 and 4.4 of the OCR GCSE (9-1) Economics specification (J205, version 2.0, first assessment 2019). J205 has no tiers. For full explanations and worked examples read the study guide, then try the practice set. Every figure is made up. Other useful pages: the OCR GCSE Economics hub, a printable topic checklist and the diagnostics.

4.3 Exchange rates: key terms

Term	Meaning
Exchange rate	what it costs, in one currency, to get one unit of another
Floating rate	set by supply and demand for the currency
Appreciation	the currency buys more foreign currency
Depreciation	the currency buys less foreign currency
Demand for a currency	from overseas buyers of exports, tourists and investors
Supply of a currency	from residents buying imports, travelling and investing abroad

Conversion: method in steps

1. Write the rate as “£1 = X units of the foreign currency”.
2. Going from pounds to the foreign currency: multiply by X.
3. Going from the foreign currency to pounds: divide by X.
4. Take off any fee before converting, if the fee is in the starting currency.
5. Check: does a stronger pound give you more foreign currency?

Worked reminders at £1 = €1.30 (illustrative):

• £320 × 1.30 = €416.
• €520 ÷ 1.30 = £400.
• The reverse rate is €1 = 1 ÷ 1.30 = £0.77 (to 2 decimal places).
• A €300 holiday bill costs 300 ÷ 1.30 = £230.77.
• If the rate falls to £1 = €1.20, the same bill costs 300 ÷ 1.20 = £250.00.

Percentage change in a rate: (new − old) ÷ old × 100. From 1.30 to 1.20 is −7.7%. From 1.30 to 1.56 is +20.0%.

Drawing and analysing the diagram

1. Vertical axis: exchange rate (for example euros per pound). Horizontal axis: quantity of pounds traded.
2. Draw a downward-sloping demand curve for pounds and an upward-sloping supply curve of pounds.
3. Mark equilibrium where they cross and label the rate and quantity.
4. For a change, shift only one curve, mark the new equilibrium, and state appreciation or depreciation.

Event	Shift	Result
Overseas demand for exports rises	demand right	appreciation
Foreign buyers expect the currency to rise	demand right	appreciation
Interest rates rise relative to other countries	demand right	appreciation
Imports become more popular	supply right	depreciation
Overseas investment by residents rises	supply right	depreciation
Inflation higher than rivals’ (over time)	demand left	depreciation

Distinction to remember: a change in the exchange rate itself is a movement along the curves. A change in anything else shifts a curve.

Reading exchange rate data

• State the start and end values and the direction.
• Give a percentage change or an index, and compare like with like.
• Pick out the biggest rise or fall and the turning points.
• Suggest a cause from the curves, and say data alone does not prove it.
• Note what averages hide, and that past patterns need not continue.

Effects of a change in the rate

	Appreciation	Depreciation
Exports	dearer abroad, fewer sold	cheaper abroad, more sold
Imports	cheaper	dearer
Importers and firms using imported inputs	costs fall	costs rise
Consumers	cheaper imports and foreign holidays	dearer imports and holidays abroad
Tourism into the country	dearer for visitors	cheaper for visitors

At £1 = €1.30 a £50 export is priced at €65.00. At €1.20 it is €60.00. A €78 import costs £60.00 at 1.30 and £65.00 at 1.20.

Evaluation checklist: elasticity of demand for the product, share of imported inputs, size of the change, how long it lasts, and what rivals’ exchange rates do. A fall in a currency is good news for some exporters and bad news for importers and consumers, so name who gains and who loses before judging.

4.4 Globalisation

Definition: the growing integration of economies through trade, capital, people, information and ideas.

Driving factor	How it drives globalisation
Transport costs fall	distant markets are affordable
Communications technology	firms coordinate production and sell online worldwide
Trade agreements	lower taxes and fewer limits on trade
Multinational companies	spread production and sales across countries
Rising incomes	more demand for varied and foreign goods
Freer capital movement	investment moves to where returns are highest

Measuring development

Measure	What it shows	Limit
GDP per capita	average income	hides inequality and non-market activity
Life expectancy	health and living conditions	says little about quality of life
Access to health care (doctors per 1,000 people)	health services	counts staff, not quality
Technology (internet users per 100)	access to modern tools	access is not always use
Education (years of schooling, literacy)	skills and opportunity	years are not the same as learning

GDP per capita = GDP ÷ population. A country with 48 billion dollars of GDP and 12 million people has 4,000 dollars per head. If GDP grows 3% and population 1.2%, GDP per capita grows 1.03 ÷ 1.012 − 1 = 1.8%.

Composite measures, such as the Human Development Index, combine income, health and education, so give a fuller picture than income alone. Two countries with equal GDP per capita can differ a lot in health and education.

Costs and benefits of globalisation

Group	Developed countries	Less developed countries
Producers	bigger markets, cheaper inputs; but more competition	access to markets, investment, technology; but multinational competition and reliance on few exports
Workers	export jobs, skilled work; but job losses and wage pressure	new jobs, often better paid than farming; but low pay, long hours, weak protection
Consumers	lower prices, more choice; but fewer local firms	cheaper goods, more choice; but local firms undercut

Sustainability tests

• Economic: lasting income and skills, or dependence on one product?
• Social: reduced poverty, or wider inequality and weaker communities?
• Environmental: transport emissions, pollution and resource use, set against cleaner technology.

Evaluation pattern: name a gain, name a cost, say who bears each, say what the balance depends on (pace of change, government support for workers, standards enforced, time period), then give a judgement.

Chains of reasoning to learn

Depreciation and an exporter: the pound buys fewer euros, so the export is cheaper in euros, so the quantity demanded abroad rises (by more if demand is elastic), so sales and jobs may rise. Evaluate: if the firm buys imported parts, its costs rise too, so the gain is smaller.

Appreciation and a consumer: the pound buys more euros, so imports and holidays abroad are cheaper, so living standards for those buyers improve. Evaluate: the same change may cost jobs in export industries, which hurts workers who are also consumers.

Index worked reminder: illustrative rates of 1.10, 1.21 and 1.32 in years 1 to 3 give an index (year 1 = 100) of 100, 110 and 120. Year 2 to year 3 is a rise of 9.1%, smaller than the 10.0% rise from year 1 to year 2, because the base is larger.

Globalisation chain: cheaper transport and communications lead firms to buy and sell abroad, so competition rises. Consumers gain choice and lower prices. Some local producers and workers lose out unless they can move into new industries.

Quick self-test

1. At £1 = €1.30, convert £320 to euros.
2. At £1 = €1.30, convert €520 to pounds.
3. The rate moves from £1 = €1.30 to £1 = €1.20. Is this an appreciation or a depreciation? Give the percentage change in the rate.
4. State two events that would shift the demand for a currency to the right.
5. Explain one way a depreciation could harm consumers.
6. A firm exports a £50 product. What is the price in euros at £1 = €1.20?
7. Calculate GDP per capita: GDP 48 billion dollars, population 12 million.
8. State two measures of development other than GDP per capita.
9. Give two driving factors of globalisation.
10. State one environmental cost and one economic benefit of globalisation for a less developed country.

Answers

1. 320 × 1.30 = €416.
2. 520 ÷ 1.30 = £400.
3. A depreciation of the pound: (1.20 − 1.30) ÷ 1.30 = −7.7%.
4. For example, higher overseas demand for exports, rising interest rates, or more tourists.
5. Imports cost more in pounds, so prices of imported goods and holidays abroad rise.
6. 50 × 1.20 = €60.00.
7. 48 billion ÷ 12 million = 4,000 dollars.
8. Any two of: life expectancy, access to health care, technology, education.
9. Any two of: lower transport costs, communications technology, trade agreements, multinational companies.
10. Environmental: pollution or resource depletion from rapid industrial growth. Economic: investment and jobs from multinational firms.

Where marks are usually lost

• Multiplying instead of dividing when converting into pounds.
• Shifting both curves, or moving the curve when only the rate changed.
• Saying “exports rise” after a depreciation with no link to price, and ignoring elasticity.
• Describing a data trend without numbers or a comparison.
• Reading GDP per capita as evidence of fairness between rich and poor.
• Listing costs and benefits of globalisation without saying who bears them.
• Leaving out sustainability when the question asks for it.
• Ending an evaluation without a judgement.

Official syllabus

OCR GCSE (9-1) Economics (J205), version 2.0 (June 2026), first assessment 2019, published by OCR.