Overseas insurance funds increase their purchases of UK government debt. At the same time, UK investment funds increase their purchases of Canadian shares. These are the only changes affecting the foreign exchange market and the pound depreciates.
What can be concluded about the relative effects of the two investment flows?
The increase in demand for pounds from overseas insurance funds was larger than the increase in supply from UK investment funds.
The two investment flows produced equal increases in the demand for and the supply of pounds.
UK investment funds increased demand for pounds, while overseas insurance funds increased supply by a larger amount.
The increase in the supply of pounds from UK investment funds was larger than the increase in demand from overseas insurance funds.
53 exam-style questions on OCR GCSE Economics 4.3 Exchange rates, covering 4.3.1 Draw how exchange rates are determined, 4.3.2 Analyse how exchange rates are determined, 4.3.3 Calculate currency conversion, 4.3.4 Analyse exchange rate data, and 4.3.5 Effect of exchange rate changes. Each one has a worked solution and a mark scheme showing where the marks go.