Foreign exchange Grade 12 Fluctuations in exchange rates

Foreign exchange Grade 12

Fluctuations in exchange rates Foreign exchange and its value to the South African economy Effect of exchange rates on international tourism Convert major currencies onto SA rand vice versa Exchange rates

Bank Buying and Bank Selling rates � Bank Buying Rates (BBR) � Bank Selling Rates (BSR) usually higher. � The bank will make money due to commission, when they sell a currency for more than they paid for it

Bank Buying rates �Bank Buying Rates (BBR) ◦ The rate at which the bank is buying foreign currency in exchange for local currency [convert foreign currency into local currency] ◦ The rate at which ABSA is converting dollar into rand. You want to sell dollars and the bank will buy dollars

Bank Selling rates �Bank Selling Rates (BSR) usually higher. ◦ The rate at which the bank is selling foreign currency [convert local currency into foreign currency] ABSA is converting rand into dollars. You want to buy dollars and the bank is selling dollars.

Converting major currencies � Use calculator � Round off to the nearest two decimal places � 27. 318942 ◦ Look at the second decimal this is your rounding digit ◦ Look at the digit to the right of the rounding digit and see if it is bigger or smaller than 4 ◦ If it is smaller then drop all the digits to the right of the rounding digit. ◦ If it is larger than 4, then add 1 to the rounding digit and drop all digits to the right of the rounding digit.

Use the exchange rate table Currency Pound Sterling (£) Dollar ($) European Euro ( €) Australian Dollar ($) Yen ( ¥) Rand equivalent 11. 55 6. 11 7. 89 4. 76 6. 20 This table indicate that 1 $ = R 6. 11

Converting major currencies to South African Rand X When converting a foreign currency to South African Rands you have to Multiply X by the exchange rate 5000 USD X 6. 11= R 30 550. 00

Converting South African Rand into a selected currency ÷ When converting a South African Rands into a selected currency you have to divide ÷ by the exchange rate R 10 000÷ 6. 11= 163. 66$

The effect of exchange rates on international and South African travel patterns � How exchange rate affect inbound tourists? � How exchange rate affect outbound tourists? � How exchange rate affects travel in developing countries? � How exchange rate affects travel in developed countries?

How exchange rate affect inbound and outbound tourists? � Inbound tourists – coming from a foreign country into SA thus International tourists � Outbound tourists- leaving their country to visit another country � The exchange rate is the price international travellers pay foreign currency. Exchange rates can impact the tourism industry either negatively or positively.

How exchange rate affect the inbound and outbound tourists and travel patterns weak currency for SA (stop) R 20. 00 = 1$ / fall in the value of the rand – it will have a twofold effect on inbound and outbound / domestic tourism strong currency for SA (GO) R 10. 00 = 1$ / rise in the value of the rand – it has a negative effect on tourism Foreign tourists / inbound tourists Travel to South Africa because Stay home because it is too they have more sending expensive to travel – less money – more foreign tourists South Africans / outbound tourists Stay at home to expensive to travel – more domestic travellers Travel overseas because they have more spending money – less domestic travellers

How exchange rate affects travel in developed and developing countries? � Developed country – economy is stable and politics more stable, thus more prosperous country. � Developing country – economy still growing. � If you travel to a developed country you will not be able to buy as many goods and service as in a developing country. � If you travel to a developing country that is also poorer in relation to your country, you will be able to buy more goods and service for the same amount of money.

How exchange rate affects travel in developed and developing countries? � Example: Germany holiday versus Zimbabwean holiday ◦ Germany is a more expensive developed country, if a South African wish to travel to Germany the travellers will have less buying power than at home. ◦ If a South African wish to travel to a developing country which is poorer and is a cheaper destination than SA, such as Zimbabwe, the traveller will have more buying power than at home.

The effect of currency fluctuations � The foreign exchange market is a huge trade market. Huge amounts of currencies are bought and sold. � There a lot of factors that can determine the exchange rate. The factors are related to the trading relationship between two countries and the countries’ economic policies.

The effect of currency fluctuations Factor Explanation Inflation A country with a lower inflation rate shows a rising currency value, its buying power increases in relation to other countries Interest rates Higher interest rates attract foreign money and investors and cause the exchange rate to rise. Trade balances If SA spend more than what SA earn we need to borrow money from other countries, that will lower the exchange rate Terms of trade If SA have a greater demand for our exports it also means a bigger demand for our currency and then it increase the currency’s value Government debt Countries with large government debts are less attractive foreign investors, leads to a decrease in the value of the currency. Political and economic instability Instability cause a loss of confidence in the currency, investors will move their money to currencies that are more stable. Leads to a decrease in the value of the currency. Employment outlook of a country An increase in unemployment sow a slowdown in the economy. This lead to a decrease in the value of a country’s currency because of declining confidence in the currency and lower demand.