How do you calculate the percentage change in an exchange rate

• →The percentage change in an exchange rate measures by how much a currency has appreciated or depreciated relative to another currency over a given period.
• →The formula used is: ((new rate − original rate) ÷ original rate) × 100. This means that a positive result indicates appreciation, while a negative result indicates depreciation.
• →For example, if the pound sterling exchanges at $1.20 against the US dollar and then rises to $1.50, the percentage change is calculated as ((1.50 − 1.20) ÷ 1.20) × 100, which equals 25%.
• →This means that the pound has appreciated by 25% against the dollar.
• →Appreciation causes UK exports become more expensive for foreign buyers, since each unit of goods now costs more in dollar terms. Therefore, a significant appreciation can reduce export competitiveness and widen a current account deficit.
• →Accurately measuring exchange rate movements is an important step in analysing the macroeconomic consequences of currency fluctuations.

• →The formula: ((new rate − original rate) ÷ original rate) × 100. Applying this correctly requires identifying which figure is the original and which is the new rate — reversing these gives the wrong answer.
• →Appreciation vs depreciation: A positive percentage change means the currency has appreciated (bought more foreign currency per unit); a negative percentage change means it has depreciated (bought less). Always state the direction explicitly.
• →Which currency is the base: Exchange rates are quoted as units of one currency per unit of another (e.g. $/£). Ensure the calculation is performed consistently from the perspective of the currency being analysed — confusing the base currency is a common source of error.
• →Significance of the magnitude: The size of the percentage change matters economically. A 1% movement has very different implications for trade balances, inflation, and investment flows than a 20% movement, particularly given the Marshall-Lerner condition, which requires the sum of export and import price elasticities of demand to exceed one for a depreciation to improve the current account.
• →Real vs nominal exchange rate: A nominal exchange rate change does not automatically translate into a change in competitiveness. If domestic inflation is rising faster than abroad, a nominal depreciation may be partially or fully offset, leaving the real exchange rate — and therefore competitiveness — largely unchanged.

This question tests a student's ability to apply quantitative reasoning to exchange rate data, a skill that sits within the broader analysis of open economy macroeconomics. Specifically, it assesses understanding of how currency values move and how those movements are measured precisely. The relevant specification points are Edexcel spec point 4.1.8.b, which covers exchange rate determination and its effects, and AQA spec point 4.2.6.4 — Exchange rate systems, which requires students to understand how exchange rates are determined and to interpret changes in them. Both specifications expect students to move beyond a qualitative description of exchange rate movements and to demonstrate numerical fluency with the underlying calculations.

Examined 2 times across AQA and Edexcel since 2017.

Both instances have appeared on paper 2, suggesting the calculation tends to arise in the context of applied data questions rather than purely theoretical discussion.

• →The International Economy — understanding comparative advantage and trade flows provides the economic context in which exchange rate changes have their most significant effects on a country's export and import performance.
• →International Economics — this topic links directly to exchange rate analysis by establishing why countries trade and how price competitiveness, influenced by currency movements, shapes the pattern of international trade.