The impact of foreign exchange rates on international trade is a recurring theme in IELTS Writing Task 2, appearing approximately once every testing cycle. Based on analysis of past exam questions from 2018-2023, this topic has been featured in various forms, particularly focusing on economic implications and global market dynamics.
how exchange rate fluctuations impact investors remains a crucial factor in understanding international trade relationships and economic stability.
Task Analysis
Some people believe that exchange rate fluctuations have a significant impact on international trade. To what extent do you agree or disagree with this statement? Provide reasons and relevant examples to support your answer.
This question requires:
- Clear position on the relationship between exchange rates and trade
- Supporting arguments with specific examples
- Balanced discussion of impacts
- Logical conclusion based on presented evidence
Band 8.5 Sample Essay
The profound influence of exchange rate variations on global trade dynamics is undeniable, and I strongly agree that these fluctuations significantly shape international commercial relationships. This essay will examine the substantial impact of currency movements on trade patterns and economic outcomes.
Firstly, exchange rate fluctuations directly affect the competitiveness of exports and imports. When a country’s currency depreciates, its exports become more attractive to foreign buyers, while imports become more expensive for domestic consumers. For instance, the recent depreciation of the Japanese yen has boosted Japanese automotive exports while making imported raw materials more costly for Japanese manufacturers. Similar effects can be observed in emerging economies like India and Brazil, where currency volatility has reshaped trade balances.
Moreover, exchange rate uncertainty can significantly impact long-term trade agreements and investment decisions. risks of investing in foreign markets become more pronounced when currency values are unstable. Companies often hesitate to enter into international contracts when faced with unpredictable currency movements, as these fluctuations can erode profit margins or lead to unexpected losses. This has been particularly evident in the technology sector, where global supply chains are highly sensitive to currency volatility.
Impact of currency fluctuations on international trade volumes
However, while exchange rate variations pose challenges, modern financial instruments and risk management strategies help mitigate their impact. International businesses increasingly use hedging mechanisms and digital payment solutions to protect against currency risks. how international banking affects global finance demonstrates the evolution of trade finance solutions in managing these challenges.
In conclusion, exchange rate fluctuations undeniably play a crucial role in shaping international trade patterns, affecting everything from market competitiveness to business strategy. While challenges exist, the development of sophisticated financial tools helps businesses navigate these currency-related complexities.
Band 6.5 Sample Essay
I agree that exchange rate changes have big effects on international trade. This essay will discuss the main ways currency changes impact global business.
When a country’s money becomes weaker, it helps their exports but makes imports more expensive. For example, if the Indian rupee gets weaker, Indian products become cheaper for other countries to buy, but Indians have to pay more for foreign goods. This affects how much countries can trade with each other.
how exchange rates affect imports shows that businesses face problems when currency values change a lot. They find it hard to plan their buying and selling because they don’t know how much things will cost in the future. Some companies lose money when currencies change suddenly.
Also, exchange rates affect tourism and education trade. When a country’s currency is strong, fewer foreign students and tourists come because everything is more expensive for them. But when it’s weak, more people visit and study there. Free trade agreements: benefits and drawbacks? explains more about these international connections.
In conclusion, exchange rates really do affect international trade in many ways. It changes how countries buy and sell things and affects many parts of the economy.
Score Analysis
Band 8.5 Essay:
- Task Response: Clear position, well-developed arguments
- Coherence & Cohesion: Logical organization, effective linking
- Lexical Resource: Sophisticated vocabulary use
- Grammatical Range: Complex structures, minimal errors
Band 6.5 Essay:
- Task Response: Basic but clear position
- Coherence & Cohesion: Simple organization
- Lexical Resource: Limited but adequate vocabulary
- Grammatical Range: Simple structures, some errors
Key Vocabulary
- fluctuation (n) /ˌflʌktʃuˈeɪʃn/ – variation or change in level
- depreciation (n) /dɪˌpriːʃiˈeɪʃn/ – reduction in value
- competitiveness (n) /kəmˈpetətɪvnəs/ – ability to compete successfully
- volatility (n) /ˌvɒləˈtɪləti/ – tendency to change rapidly
- hedging mechanisms (n) /ˈhedʒɪŋ ˈmekənɪzəmz/ – financial protection strategies
Practice writing your own essay on this topic and share in the comments for feedback. Similar topics might include currency manipulation, trade barriers, or economic protectionism.
