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)

1. What is an exchange rate?

2. What is the difference between

devaluation and revaluation?

3. What is the difference between

fixed and flexible exchange rates?

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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 The increase in value of exchange
of foreign exchange. rate 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
foreign exchange 56 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 The government allows the exchange rate to be determined
exchange rate regime by 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
E0 ------------- increase in the price of exchange rate raises the peso
value of goods and assets. This reduces the demand for
D foreign goods and consequently the demand for foreign
0 Q0 exchange.

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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

_____1.The foreign exchange market is where the international trade of goods and services takes
place.
_____2. An exchange rate is the number of units of one currency required to purchase one unit of
another currency.
_____3. As a nation's income increases, its demand for imports increases, creating an increase in its
demand for foreign currencies.
_____4. A currency depreciates if less of that currency is required to buy one unit of another currency.
_____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.
_____6. Exchange rate and quantity demanded are inversely proportional to each other.
_____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.
_____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.
_____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.
_____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: Quiz #2 (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.

___1. foreign exchange market a. the relationship between foreign exchange rates and quantity
supplied

___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
___3. exchange rate c. an itemized account of a nation’s foreign economic transactions
___4. balance on current account d. transfers of currency made by individuals, businesses, or the
government of one nation to individuals, businesses, or
governments in other nations without anything being given in
exchange
___5. floating exchange rate e. tariffs and quotas used by government to limit a nation’s imports
___6. balance of trade f. a market in which currencies of different nations are
bought and sold
___7. appreciation g. an exchange rate determined strictly by the demands and
supplies for a nation’s currency
___8. unilateral transfers h. a category that itemizes changes in foreign asset holdings in a
nation and that nation’s asset holdings abroad
___9. depreciation i. interest payments on international debt as a percentage
of a nation’s merchandise exports
___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
___11. arbitrage k. the stock of foreign currencies held by a government
___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
___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
___14. debt service n. the number of units of foreign currency that can be
purchased with one unit of domestic currency
___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
___16. import controls p. the difference between the value of a nation’s merchandise
exports and its merchandise imports
___17. devaluation q. an international organization formed to make loans of
foreign currencies to countries facing balance of payments
problems
___18. exchange controls r. the total amount of borrowing a nation is obligated to repay
other nations and international organizations
___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!

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