Lesson Plan

• Describe how interest‑rate differentials influence foreign‑exchange demand.
• Explain the mechanism linking central‑bank rate changes to capital flows and currency appreciation or depreciation.
• Analyse a short‑term scenario of differing interest rates between two countries and predict the exchange‑rate movement.
• Evaluate how inflation, risk perception, and market liquidity can modify the interest‑rate effect on exchange rates.

• Projector and screen
• PowerPoint slides with diagrams
• Printed handout of the supply‑and‑demand FX diagram
• Calculator for each pair
• Worksheet containing the UK‑US example and practice question
• Whiteboard and markers

Begin with a headline about a recent central‑bank rate hike to capture interest. Ask students what they already know about how exchange rates are quoted and why investors care about interest returns. Explain that by the end of the lesson they will be able to identify the cause‑effect chain from a rate change to currency movement and assess other influencing factors.

1. Do‑now (5') – quick quiz on basic foreign‑exchange terminology.
2. Mini‑lecture (10') – present the interest‑rate mechanism using a supply‑and‑demand graph.
3. Guided analysis (10') – students work in pairs to walk through the UK‑US example, filling in a worksheet.
4. Interactive simulation (15') – use an online FX calculator to model how a 2% rate increase affects the pound’s value.
5. Class discussion (5') – explore how inflation differentials, risk perception, and market liquidity can alter the basic effect.
6. Practice question (5') – write a short explanation of a hypothetical rate change; collect as an exit ticket.

Summarise the four‑step chain from interest‑rate announcement to currency appreciation or depreciation and remind students of the modifying factors discussed. Students complete an exit ticket stating one real‑world example of a recent rate change and its expected FX impact. For homework, ask them to find a current central‑bank decision and write a brief paragraph predicting the short‑term exchange‑rate response.