ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Botswana’s level of protection would fall.
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Botswana’s tourists travelling to South Africa would find it less expensive
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South Africa’s imports would be cheaper.
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South Africa’s tourists travelling to Botswana would receive more pula per rand
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Detailed explanation-1: -The currency exchange rate of the South African rand for the Botswana pula fell by 5.7% between August 2014 and August 2015. What would be the immediate effect of this? Botswana’s level of protection would fall.
Detailed explanation-2: -Implications of the weak rand Firstly, the weakening currency carries the risk of pushing up inflation because imported goods are more expensive. This means that the South African Reserve Bank faces a difficult decision. It can keep interest rates low but then faces even higher inflation.
Detailed explanation-3: -The value of rand goes down, and the equilibrium quantity of a dollar exchanged in the foreign market decreases also.
Detailed explanation-4: -The ZAR/USD exchange rate measures units of the South African rand per US dollar. Hence, an increase means a depreciation of the South African rand and an appreciation of the US dollar.
Detailed explanation-5: -The study results confirm that exchange rate volatility has insignificant negative long run impact on South African exports. Besides, real exchange rate has insignificant negative long-run effects on South African exports.