Unit 4 → Subtopic 4.3
Simulating Trading: Tracking Currency Movements
Currencies fluctuate in value every day, impacting global trade, investments, and economic stability. Businesses, travelers, and governments constantly monitor exchange rates to make financial decisions, as currency values affect import and export costs, inflation, and international competitiveness. This project challenges students to simulate a real-world trading environment by tracking currency movements over a set period and analyzing the factors that influence exchange rate fluctuations.
Students will begin by researching how currency exchange rates work, focusing on floating vs. fixed exchange rate systems, the role of supply and demand, and the influence of central banks and government policies. They should explore key factors that affect currency values, such as inflation, interest rates, trade balances, and geopolitical events.
For the experiment, students will select at least two major currencies (such as the U.S. dollar, Euro, Japanese yen, or British pound) and track their exchange rate fluctuations over a specific period (e.g., one or two weeks). They should document daily changes and investigate possible reasons for those shifts, analyzing whether changes were caused by economic reports, political events, central bank interventions, or global market trends.
A key focus of this project is understanding the impact of exchange rates on global trade and investment. Students should consider how a weaker or stronger currency affects their country’s exports, imports, inflation, and foreign investments. They should also evaluate whether certain countries manipulate currency values to gain trade advantages, an issue that has caused international disputes.
At the end of the experiment, students will compile their findings into a report analyzing how and why exchange rates changed, what economic consequences resulted from those fluctuations, and how businesses and governments respond to shifts in currency markets. The goal of this project is to help students develop a deeper understanding of foreign exchange markets, monetary policies, and global financial dynamics.
Recommended Procedure:
Research How Currency Exchange Rates Are Determined – Study how supply and demand, interest rates, inflation, and government interventions influence currency values in global markets. Explore the difference between fixed and floating exchange rate systems.
Analyze How Currency Movements Affect Trade and Investment – Investigate how currency appreciation and depreciation impact exports, imports, foreign investment, and inflation within an economy. Study real-world examples like the U.S. dollar's global influence and the Eurozone’s currency policies.
Set Up a Currency Trading Simulation – Create a mock foreign exchange (forex) market where students can track currency fluctuations over a set period. Incorporate variables such as economic news, central bank decisions, and market speculation to simulate real-world currency movements.
Evaluate Factors That Lead to Currency Fluctuations – Examine how political instability, economic data releases, and global events (e.g., oil price shocks or financial crises) drive short- and long-term changes in exchange rates.
Write a Report on the Implications of Currency Movements – Summarize findings on how currency volatility affects national economies, business strategies, and international trade. Discuss whether governments should intervene in currency markets or allow free-market adjustments.
Suggested Sources:
Understanding Currency Markets and Exchange Rates:
Investopedia: How Foreign Exchange Markets Work – https://www.investopedia.com
Khan Academy: Exchange Rates and Their Economic Impact – https://www.khanacademy.org
Case Studies on Currency Fluctuations:
The Balance: How Currency Depreciation and Appreciation Affect Trade – https://www.thebalancemoney.com
Harvard Business Review: The Role of Currency Stability in Economic Growth – https://hbr.org
Economic and Political Factors Driving Currency Movements:
World Bank: Exchange Rate Policies and Global Trade – https://www.worldbank.org
OECD: How Inflation and Interest Rates Influence Currency Strength – https://www.oecd.org
The Future of Currency Markets and Global Financial Stability:
IMF: How Central Banks Manage Currency Volatility – https://www.imf.org
United Nations: Exchange Rate Challenges in Developing Economies – https://www.un.org
Grading Rubric:
Total Points: __ /20
