Exchange rate fluctuations and their impact on investors is a recurring theme in IELTS Writing Task 2, appearing approximately every 8-12 months in actual tests. This topic’s frequency has increased since 2020 due to growing global economic uncertainties and market volatility. Understanding how to approach this subject is crucial for achieving a high band score.
For candidates interested in risks of investing in foreign markets, this essay collection provides comprehensive examples across different band scores.
Recent Exam Question Analysis
Some people believe that exchange rate fluctuations have both positive and negative effects on international trade and investment. To what extent do you agree or disagree with this statement? Provide reasons and relevant examples from your experience.
Essay Analysis
This question requires candidates to:
- Take a clear position on the dual impact of exchange rate changes
- Provide balanced arguments with specific examples
- Demonstrate understanding of international economics
- Use appropriate academic vocabulary
- Structure arguments logically
Band 8.5 Sample Essay
The volatile nature of currency exchange rates undoubtedly creates both opportunities and challenges for international trade and investment. I strongly agree that these fluctuations have dual implications, and this essay will analyze their contrasting effects on global economic activities.
Exchange rate variations can significantly benefit certain market participants. When a country’s currency depreciates, its exports become more competitive in international markets, potentially boosting export-oriented industries and attracting foreign investment in manufacturing sectors. For instance, when the Japanese yen weakened against the US dollar in 2022, Japanese automotive manufacturers saw increased profit margins from their international sales, while foreign investors found Japanese assets more attractive due to lower entry costs.
However, currency fluctuations also pose substantial risks to international trade and investment. Sudden and significant changes in exchange rates can disrupt business planning, increase operational costs, and erode profit margins for companies engaged in cross-border transactions. For example, The role of financial markets in economic stability was highlighted when the rapid appreciation of the Swiss franc in 2015 caused significant losses for many European businesses and investors.
In my view, while exchange rate movements create opportunities for some market participants, their overall impact tends to be more challenging for sustainable economic growth and investment stability. The uncertainty they introduce often outweighs potential benefits, particularly for developing economies and small-to-medium enterprises engaging in international trade.
(290 words)
Band 6.5 Sample Essay
I agree that exchange rate changes have good and bad effects on international business and investment. This essay will discuss both sides of this issue.
First, when exchange rates change, it can help some businesses. If a country’s money becomes cheaper, other countries can buy their products for less money. This helps companies sell more things to other countries. For example, when Indian rupee becomes weaker, Indian IT companies can get more customers from America because their services cost less in dollars.
But exchange rates can also cause problems. When money values change quickly, it becomes hard for businesses to plan their costs and profits. Sometimes companies lose lots of money because of sudden currency changes. Like when Chinese companies have to pay more yuan to buy machines from Germany if the euro gets stronger.
Also, people who invest money in other countries face risks from exchange rates. Their investments can lose value if the local currency gets weaker. This happened to many investors in Asian countries during the 1997 financial crisis.
I think the bad effects of exchange rate changes are bigger than the good effects. It makes international business more difficult and risky, especially for small companies.
(159 words)
Key Vocabulary
- Volatility (n) /ˌvɒləˈtɪləti/ – rapid and unpredictable changes
- Depreciate (v) /dɪˈpriːʃieɪt/ – decrease in value
- Appreciation (n) /əˌpriːʃiˈeɪʃən/ – increase in value
- Cross-border transactions (n) /krɒs ˈbɔːdə trænˈzækʃənz/ – business dealings between countries
- Operational costs (n) /ˌɒpəˈreɪʃənl kɒsts/ – expenses from running a business
Practice Suggestions
Try writing essays on these related topics:
- The role of government intervention in currency markets
- Digital currencies’ impact on international trade
- Currency unions’ effects on regional economic stability
Share your practice essays in the comments section for feedback and improvement suggestions.