Exchange Rates (Online Lesson)

In this extended online lesson, we cover the topic of exchange rates at full A level standard.

WHAT YOU'LL STUDY IN THIS ONLINE LESSON

• the meaning and nature of an "exchange rate"
• an overview of the world's leading currencies
• an overview of the different types of exchange rate systems
• the determination of exchange rates in a freely floating system
• the impact of a fall in the value of a currency (including the J-curve effect and the Marshall-Lerner condition)
• how governments / monetary authorities maintain a fixed exchange rate
• the advantages and disadvantages of different exchange rate systems
• Purchasing Power Parity

Additional teacher guidance is available at the end of this lesson. Thank you to Peter McGinn, Cathy Williams and Jon Clark for their contributions to this lesson.

HOW TO USE THIS ONLINE LESSON

Follow along in order of the activities shown below. Some are interactive game-based activities, designed to test your understanding and application of exchange rates. Others are based on short videos, including activities for you to think about and try at home, as well as some extra worksheet-based activities.

If you would like to download a simple PDF worksheet to accompany the video activities, you can find it here. You can print it off and annotate it for your own notes, or make your own notes on a separate piece of paper to add to your school/college file.

ACTIVITY 1: VIDEO - WORLD CURRENCIES

Let's start this lesson by building knowledge of different global currencies and considering the importance of the foreign exchange market.

ACTIVITY 2: RESEARCH AND THINKING TASK

Find yourself a world map (there's one here). For each country, think about whether you know what currency they use. Check your knowledge here. How many did you get?

ACTIVITY 3: VIDEO - DIFFERENT EXCHANGE RATE SYSTEMS

This video provides an overview of the main types of exchange rate system, along with some examples.

ACTIVITY 4: GAME - CURRENCY SYSTEMS

Test yourself in this Clear the Deck activity, focusing on currency systems.

ACTIVITY 5: VIDEO - FLOATING EXCHANGE RATE SYSTEMS

In this video, we look at how the value of a currency is determined in a floating exchange rate system, using diagrammatic analysis.

ACTIVITY 6: VIDEO - CURRENCY DEPRECIATION

In this video, we look at the theoretical impact on an economy of a currency depreciation. We then also evaluate the impact using the J-curve and the Marshall-Lerner condition.

ACTIVITY 7: APPLICATION TASK

Here is a selection of news stories from The Economist magazine from recent years which focus on the impact of depreciation / devaluation in various countries.

• Devaluation and depreciation in Latin America
• Large depreciations in 2016
• Why African governments like strong currencies
• Depreciation of the £ Sterling

Read these articles, and make notes on the scenarios in which depreciation/devaluation helps an economy, and the scenarios in which it doesn't.

ACTIVITY 8: VIDEO - INTRODUCTION TO FIXED EXCHANGE RATES

In this video, we consider the nature of fixed exchange rates and look at why and how monetary authorities can intervene in foreign exchange markets to manipulate exchange rates.

ACTIVITY 9: VIDEO - CHINESE YUAN

This video takes an applied approach and explores the relationship between the value of the Chinese Yuan and the US Dollar.

ACTIVITY 10: IS CHINA A CURRENCY MANIPULATOR?

In 2019, the value of the Chinese currency fell quite sharply against the US Dollar, prompting US President Donald Trump to label China as a "currency manipulator". Your task is to

1. Find out what is meant by a currency manipulator, and
2. Decide, based on your own research and evidence, whether Trump's view was valid

You can start by reading this short summary from the BBC. There is plenty of material available online on this topic from a range of media sources.

ACTIVITY 11: VIDEO - COMPARING CURRENCY SYSTEMS

Exam questions often focus on the advantages and disadvantages of different exchange rate systems - this video will help you to build the relevant knowledge that you need to be able to answer those questions.

ACTIVITY 12: VIDEO - PPP

In this final video for the online lesson, we look at the meaning of Purchasing Power Parity. You can also follow up the video by exploring the latest data on the Big Mac Index here.

ENRICHMENT ACTIVITY: SYNOPTIC THINKING

Have a go at this Synoptic Assessment Mat on the depreciation of the £ Sterling.

ADDITIONAL TEACHER GUIDANCE

This online lesson is a little longer than some of our others, as we decided to group together all of the videos on exchange rates. As such, the lesson comprises:

• just over an hour of guided video content, spread across 8 videos
• around 20-30 minutes of student thinking time throughout the videos
• several additional research tasks
• an interactive game on currency systems
• a synoptic assessment activity