Exchange Rates, International Payments & Price Effects — Drills · Grade 12 Social Studies

Chapter: Global Connections, Risk & Economic Inquiry

What these drills covers

By the end of Exchange Rates, International Payments & Price Effects you should be able to:

4 questions, written answer, each with a worked explanation.

Vocabulary used: exchange rate, appreciation, depreciation, currency exposure, reciprocal quotation.

Problem 1

Why must an exchange quotation state its units?
Answer and explanation

The units determine the conversion direction. Dollars per euro multiplies a euro amount into dollars, while the reciprocal quote works in the other direction. An unlabeled number cannot establish which currency strengthened or what an item costs.

Problem 2

Why can the same rate change help one purchaser and raise another’s converted cost?
Answer and explanation

They hold different currencies and face prices stated in different units. The fixed euro item becomes costlier in dollars, while a fixed dollar item becomes cheaper in euros. Contracts, fees, and price responses may change real outcomes.

Problem 3

Why does depreciation not guarantee a higher exporter profit?
Answer and explanation

Input costs, contracts, demand, quantities, and financing can also change. A converted sales-price advantage is one channel, not the whole profit calculation. Examine the firm’s currency exposures and relevant records.

Problem 4

What should a plan do when its future exchange rate is uncertain?
Answer and explanation

State the assumed quotation, convert with units, test alternative rates and costs, and identify the obligation’s timing. Do not treat one quote as a guaranteed future amount or omit charges from a real comparison.

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