Pros and Cons of Currency Strenth in South Africa.
Prepared by: SEOKE L.J.
ASSIGNMENT TOPIC: a weak currency or a strong currency for the South African economy? What are the pros and cons of a weak currency or a strong currency in South Africa? Discuss.
A. Introduction
Cartoonists in South Africa have a long-running joke that shows a bruised and feeble coin, the rand, being beaten up by two muscled thugs, the dollar and the pound. In 2001 South Africa 's currency was knocked down by two-fifths against the greenback, much of it in the closing weeks of the year.[The Economist (Jan 17th 2002)]
Turnbull, Jdefines currency as something that is used or accepted by a lot of people. Looking at the definition in economic terms it can be explained as the system of money that a country uses.A currency with value that has depreciated significantly over time against other currencies is distinct as weak. The long-term outlook for a weak currency is that it will continue to lose value due to fundamental weaknesses in the nation that issues this currency. A weak currency is a currency said to be a less desirable form of payment than other currencies. These currencies generally trade at a discount in relation to currencies of economically developed countries. Foreign exchange dealers generally do not make markets in weak currencies, except for currency speculation. A dealer who expects a weak currency to decline in value may sell that currency short, making a profit from the difference in exchange rates.
Acceptability of one currency versus another is dependent, of course, on local market conditions. The Portuguese escudo, for example, may be a weaker currency than the U.S. dollar, but its relative weakness may not be significant enough to discourage exporters from accepting it as payment.
On the other hand a currency is strong when it is worth more relative to other currencies. This is because most currencies are floating, their values vary according to market trends. When one unit of a currency trades for
ASSIGNMENT TOPIC: a weak currency or a strong currency for the South African economy? What are the pros and cons of a weak currency or a strong currency in South Africa? Discuss.
A. Introduction
Cartoonists in South Africa have a long-running joke that shows a bruised and feeble coin, the rand, being beaten up by two muscled thugs, the dollar and the pound. In 2001 South Africa 's currency was knocked down by two-fifths against the greenback, much of it in the closing weeks of the year.[The Economist (Jan 17th 2002)]
Turnbull, Jdefines currency as something that is used or accepted by a lot of people. Looking at the definition in economic terms it can be explained as the system of money that a country uses.A currency with value that has depreciated significantly over time against other currencies is distinct as weak. The long-term outlook for a weak currency is that it will continue to lose value due to fundamental weaknesses in the nation that issues this currency. A weak currency is a currency said to be a less desirable form of payment than other currencies. These currencies generally trade at a discount in relation to currencies of economically developed countries. Foreign exchange dealers generally do not make markets in weak currencies, except for currency speculation. A dealer who expects a weak currency to decline in value may sell that currency short, making a profit from the difference in exchange rates.
Acceptability of one currency versus another is dependent, of course, on local market conditions. The Portuguese escudo, for example, may be a weaker currency than the U.S. dollar, but its relative weakness may not be significant enough to discourage exporters from accepting it as payment.
On the other hand a currency is strong when it is worth more relative to other currencies. This is because most currencies are floating, their values vary according to market trends. When one unit of a currency trades for
References: 1. Farlex Financial Dictionary. 2009 Farlex, Inc. All Rights Reserved] 2. Go Currency (2009). What is the South African rand (ZAR)? Go Currency[Date accessed: Aug 24th 2011 on:http://www.gocurrency.com/countries/south_africa.htm] 3. Mishkin, F.S. (2010). The Economics of Money:Banking and Financial Markets. 9th edition. USA:Pearson Education Inc. 4. The China Post. (April 21, 2011 ). South Africa 's trade minister warns against strong currency. The China Post. [Accessed date: Aug 11th 2011. On: http://www.chinapost.com.tw/business/africa/2011/04/21/299539/South-Africas.htm 5. The Economist (Jan 17th 2002). South Africa 's weak currency. No random walk: Interest rates up, an inquiry launched. The Economist. [Date accessed: Aug 22nd 2011. on:http://www.economist.com/node/941460] 6. Turnbull,J (2010).Oxford Advanced Learner’s Dictionary.8th. UK: Oxford University Press 7. Van Der Merwe, M. (2010). Monetary Economics in South Africa. Cape Town: Oxford University Press Southern Africa.