| Date | South Korean Won | Taiwanese Dollar | Vietnamese Dong | Singapore Dollar |
|---|---|---|---|---|
| 1-Jan-23 | 100 | 100 | 100 | 100 |
| 30-Jun-23 | ~86 | ~91 | ~94 | ~98 |
In late 2022, a surge in global demand for consumer electronics and automotive microchips benefited East Asian manufacturing hubs, particularly South Korea, which recorded robust export earnings. Global investment poured into Seoul's technology equities, strengthening the Won.
However, by the first half of 2023, the economic landscape shifted. Rising inflation in the Eurozone led the European Central Bank (ECB) to aggressively raise its main refinancing rate from 2.50% to 4.00%, attracting yield-seeking capital back to Euro-denominated assets. Simultaneously, global consumer demand for smartphones and memory chips slumped heavily, causing a sharp contraction in South Korea's semiconductor export values. South Korea's central bank, the Bank of Korea, attempted to stabilise the Won by selling foreign reserves and holding its own policy rate steady at 3.50% to avoid choking domestic growth, but the currency still experienced downward pressure. During this six-month period, the South Korean Won fell by approximately 14% against the Euro, while the Taiwanese Dollar declined by 9%.
With reference to Figure 1 and Extract A, explain one likely reason for the fall in the exchange rate of the South Korean Won.
103 exam-style questions on Edexcel A A Level Economics 4.1 International economics, covering 4.1.1 Globalisation, 4.1.2 Specialisation and trade, 4.1.3 Pattern of trade, 4.1.4 Terms of trade, 4.1.5 Trading blocs and the World Trade Organisation (WTO), 4.1.6 Restrictions on free trade, 4.1.7 Balance of payments, 4.1.8 Exchange rates, and 4.1.9 International competitiveness. Each one has a worked solution and a mark scheme showing where the marks go.