ECO 007: Economic Development

Student Activity Sheets Module #13

Name: Class number:

Date:
Section: Schedule:

Lesson title: Exchange Rate Materials:

Lesson Objectives: Student Activity Sheets
1. I can explain the types of exchange rate. References:
2. I can differentiate devaluation or revaluation of foreign exchange. Economics by Bello, Camacho,
Catelo, Cuevas and Rodriguez.
2009 edition
Investopedia

Don’t let lazy mornings get you off

track. You can do it! Just believe in
yourself and have faith in God.

A. LESSON PREVIEW/REVIEW

1) Introduction (2 min)
Good day buddy! I know you are familiar with our topic for today. I will provide additional supplements about
the concept of exchange rates. Be ready!

2) Activity 1: What I Know Chart (3 min)

Direction: I posted some questions on the second column about our topic for today. Kindly write your ideas on
the first column. There’s no right or wrong answers so feel free to express your ideas.

What I Know Questions: What I Learned (Activity 4)

None 1. What is an exchange rate? Value of one currency expressed
in terms of another currency.
None 2. What is the difference between Devaluation occurs when a
devaluation and revaluation? country intentionally lowers the
value of its currency relative to
other currencies. Revaluation
happens when a country raises the
value of its currency.
None 3. What is the difference between fixed Fixed ER involve more
and flexible exchange rates? government control and Flexible
ER allow market forces to
determine currency values.
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 ECO 007: Economic Development
Student Activity Sheets Module #13

Name: Class number:

Date:
Section: Schedule:

B. MAIN LESSON
1) Activity 2: Content Notes (18 min)
You can write down important notes or highlight words which you think are the main points of our topic.
Exchange Rates
An exchange rate is the value of one nation's currency versus the currency of another nation or economic zone. It is
nothing more than a price. In the Philippines, the most commonly known exchange rate is perhaps the peso-US
dollar exchange rate. This indicates the amount of pesos needed to purchase one US dollar.

Term Meaning Example

1. Devaluation/Depreciation An increase in the price of The increase in value of exchange rate
foreign exchange. from 29.50 pesos per US dollar in 1997
to 40.90 pesos per US
dollar in 1998
2. Revaluation/Appreciation A decline in the price of The fall in the exchange rate from 56
foreign exchange pesos per US dollar in 2004 to
46.10 pesos per US dollar on 2007

3 Ways in Determining the Exchange Rate of an Economy

System Explanation
1. Fixed exchange rate regime A system in which the government through the central bank
establishes a narrow band or a specific value for the exchange rate of
the country against other currencies.
2. Flexible or floating exchange The government allows the exchange rate to be determined by
rate regime market forces – supply and demand.
3. Manage float A combination of fixed and flexible exchange rate regime. This
system involves government intervention in the foreign
exchange market but does not commit to a narrow band or specific
value for the exchange rate.
Note: The terms devaluation and revaluation are used under the fixed exchange rate regime;
depreciation and appreciation are used under the flexible or floating exchange rate regime

S The Demand Side: There is a negative relationship

between the exchange rate and quantity demanded. An increase in
E0 ------------- the price of exchange rate raises the peso value of goods and
assets. This reduces the demand for foreign goods and
D consequently the demand for foreign exchange.
Q0

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 ECO 007: Economic Development
Student Activity Sheets Module #13

Name: Class number:

Date:
Section: Schedule:

The Supply Side: There is a positive relationship between

the exchange rate and quantity supplied. An increase in the price
of peso-dollar exchange rates make goods produced in the
Philippines cheaper from the viewpoint of foreigners who want to
buy domestic currency (pesos). These foreigners will sell more
dollars.

2) Activity 3: Skill-Building Activities (10 min)

Part 1: True or False

F 1.The foreign exchange market is where the international trade of goods and services takes place.
T 2. An exchange rate is the number of units of one currency required to purchase one unit of another
currency.
T 3. As a nation's income increases, its demand for imports increases, creating an increase in its demand for
foreign currencies.
F 4. A currency depreciates if less of that currency is required to buy one unit of another currency.
T 5. The supply curve of a currency will shift to the right when interest rates in that country fall relative
to interest rates in other countries.
T 6. Exchange rate and quantity demanded are inversely proportional to each other.
T 7. Arbitrage is the process whereby currencies are purchased in markets with low prices and sold in markets
with high prices, creating mutually consistent exchange rates.
T 8. One problem with a fixed exchange rate is that if the demand for imports continually increases, an excess
demand for foreign currency will be generated at the fixed exchange rate that may deplete foreign currency reserves.
T 9. An exchange control system requires exporters to convert any foreign exchange earned by trade into the
domestic currency in order to replenish the government's supply of foreign exchange.
F 10. Under the manage float type of exchange rate regime, the government is allow to intervene in the foreign
exchange market setting a narrow band or specific value for the exchange rate.

3) Activity 4: What I Know Chart (2min)

Go back to Activity 1 and complete the table by writing your answer on the third column.

4) Activity 5: Short Quiz (20min)

Direction: Match the terms on the left with the phrases in the column on the right. Write your answer on the space
before the number.

F 1. foreign exchange market a. the relationship between foreign exchange rates and quantity
supplied

C 2. balance of payments b. a rate determined and maintained by government

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 ECO 007: Economic Development
Student Activity Sheets Module #13

Name: Class number:

Date:
Section: Schedule:

by buying and selling its own currency on the foreign exchange market
N 3. exchange rate c. an itemized account of a nation’s foreign economic transactions
L d. transfers of currency made by individuals, businesses, or the
4. balance on current account
government of one nation to individuals, businesses, or governments in
other nations without anything being given in exchange
G 5. floating exchange rate e. tariffs and quotas used by government to limit a nation’s imports
P 6. balance of trade f. a market in which currencies of different nations are
bought and sold
T 7. appreciation g. an exchange rate determined strictly by the demands and supplies
for a nation’s currency
D 8. unilateral transfers h. a category that itemizes changes in foreign asset holdings in a
nation and that nation’s asset holdings abroad
S 9. depreciation i. interest payments on international debt as a percentage of a
nation’s merchandise exports
H 10. balance on capital account j. a system in which the government, as the sole
depository of foreign currencies, exercises complete control over how
these currencies can be used
M 11. arbitrage k. the stock of foreign currencies held by a government
R 12. international debt l. a category that itemizes a nation’s imports and export
of merchandise and services, income receipts and payments on
investment, and unilateral transfers
B 13. fixed exchange rate m. the practice of buying a foreign currency in one market
at a low price and selling it in another at a higher price
I 14. debt service n. the number of units of foreign currency that can be
purchased with one unit of domestic currency
K 15. foreign exchange reserves o. government policy that lowers the nation’s exchange
rate, i.e., fewer units of foreign currency for a unit of its own
currency
E 16. import controls p. the difference between the value of a nation’s merchandise
exports and its merchandise imports
O 17. devaluation q. an international organization formed to make loans of
foreign currencies to countries facing balance of payments
problems
J 18. exchange controls r. the total amount of borrowing a nation is obligated to repay
other nations and international organizations
A 19. International Monetary Fund s. a fall in the price of a nation’s currency relative to foreign
currencies

20. Positive t. a rise in the price of a nation’s currency relative to foreign

currencies

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 ECO 007: Economic Development
Student Activity Sheets Module #13

Name: Class number:

Date:
Section: Schedule:

C. LESSON WRAP-UP
1) Activity 6: Thinking about Learning (5 min)

A. Work Tracker
You are done with this session! Let’s track your progress. Shade the session number you just completed.

B. Think about your Learning

1. Hello buddy! How do you find our topic for today? Can you please share your journey on how you
understand the topic? What makes it (easy, hard) for you to understand the topic?

2. What is your question about our topic for today?

FAQ
1. What Is an arbitrage?
An arbitrage refers to the practice of buying a foreign currency in one market at a low price and selling it in
another at a higher price. The person who does this practice is called arbitrageurs.

KEY TO CORRECTIONS

Skill Building Activity

Part 1

1. F 6. T
2. T 7. T
3. T 8. T
4. F 9. T
5. T 10. F

Submit your activity sheets before the end of the session!