Objective: This activity aims to help IB economics students analyse the reasons behind exchange rate changes between fictional countries and currencies. Students will identify the factors affecting the exchange rate, draw exchange rate diagrams, and perform calculations using the given exchange rate information.
Case Study 1: The exchange rate between the Hilaria Dollar (H$) and the Jocupee Jingle (J¢) recently changed from 1 H$ = 5 J¢ to 1 H$ = 7 J¢ due to a significant discovery of natural resources in Hilaria, which attracted foreign investors.
Questions:
- Identify the factor that caused the change in the exchange rate and comment on whether it is a demand-side or supply-side factor.
- Draw an exchange rate diagram illustrating the change between the Hilaria Dollar and the Jocupee Jingle.
- Calculate the amount of Jocupee Jingles received for 100 Hilaria Dollars before the change.
- Calculate the amount of Jocupee Jingles received for 100 Hilaria Dollars after the change.
- Calculate the percentage change in the value of the Hilaria Dollar against the Jocupee Jingle.
- Explain the impact of this exchange rate change on one stakeholder/economic agent and explain why. It could be domestic or foreign but must be different for each case study.
Case Study 2: The exchange rate between the Chucklia Crown (C¥) and the Giggland Guilder (G£) changed from 1 C¥ = 10 G£ to 1 C¥ = 8 G£ as a result of a recent increase in interest rates in Giggland, leading to capital inflows.
Questions:
- Identify the factor that caused the change in the exchange rate and comment on whether it is a demand-side or supply-side factor.
- Draw an exchange rate diagram illustrating the change between the Chucklia Crown and the Giggland Guilder.
- Calculate the amount of Giggland Guilders received for 50 Chucklia Crowns before the change.
- Calculate the amount of Giggland Guilders received for 50 Chucklia Crowns after the change.
- Calculate the percentage change in the value of the Chucklia Crown against the Giggland Guilder.
- Explain the impact of this exchange rate change on one stakeholder/economic agent and explain why. It could be domestic or foreign but must be different for each case study.
Case Study 3: The exchange rate between the Grinia Groat (G₲) and the Lolloco Lira (Lℓ) shifted from 1 G₲ = 4.7 Lℓ to 1 G₲ = 2.9 Lℓ following a period of political instability in Grinia, causing domestic investors to move their capital abroad.
Questions:
- Identify the factor that caused the change in the exchange rate and comment on whether it is a demand-side or supply-side factor.
- Draw an exchange rate diagram illustrating the change between the Grinia Groat and the Lolloco Lira.
- Calculate the amount of Lolloco Liras received for 200 Grinia Groats before the change.
- Calculate the amount of Lolloco Liras received for 200 Grinia Groats after the change.
- Calculate the percentage change in the value of the Grinia Groat against the Lolloco Lira.
- Explain the impact of this exchange rate change on one stakeholder/economic agent and explain why. It could be domestic or foreign but must be different for each case study.
Case Study 4: The exchange rate between the Ribley Rumble (R฿) and the Snickerston Snickel (S₴) changed from 1 R฿ = 12.5 S₴ to 1 R฿ = 15.3 S₴ due to Ribley’s central bank intervening in the foreign exchange market to buy large amounts of Ribley Rumbles.
Questions:
- Identify the factor that caused the change in the exchange rate and comment on whether it is a demand-side or supply-side factor.
- Draw an exchange rate diagram illustrating the change between the Ribley Rumble and the Snickerston Snickel. 3. Calculate the amount of Snickerston Snickels received for 300 Ribley Rumbles before the change.
- Calculate the amount of Snickerston Snickels received for 300 Ribley Rumbles after the change.
- Calculate the percentage change in the value of the Ribley Rumble against the Snickerston Snickel.
- Explain the impact of this exchange rate change on one stakeholder/economic agent and explain why. It could be domestic or foreign but must be different for each case study.
Case Study 5: The exchange rate between the Tickletoe Taler (T₸) and the Whoopee Won (W₩) shifted from 1 T₸ = 24.6 W₩ to 1 T₸ = 19.8 W₩ after a rapid increase in imports in Tickletoe due to a surge in consumer spending, causing a higher supply of Tickeltoe Talers in the foreign exchange market.
Questions:
- Identify the factor that caused the change in the exchange rate and comment on whether it is a demand-side or supply-side factor.
- Draw an exchange rate diagram illustrating the change between the Tickletoe Taler and the Whoopee Won.
- Calculate the amount of Whoopee Wons received for 400 Tickletoe Talers before the change.
- Calculate the amount of Whoopee Wons received for 400 Tickletoe Talers after the change.
- Calculate the percentage change in the value of the Tickletoe Taler against the Whoopee Won.
- Explain the impact of this exchange rate change on one stakeholder/economic agent and explain why. It could be domestic or foreign but must be different for each case study.