Question 3: FOREIGN EXCHANGE

8. What are the steps that need to be taken to determine an exchange rate? (6)

Step 1: Identify the exchange rate of the currency you need and find the ISO code. For example, the currency code of the rand is ZAR, while that of the US Dollar is USD. Step 2: Look up the exchange rate for your two currencies. Step 3: Calculate the exchange rate by looking at a currency pair (two currencies). The first currency in the pair, known as the base currency, is the transaction currency and the second currency is the payment currency. (6)

INFORMAL FLUCTUATIONS The changes that are happening with the exchange rate

The exchange rate changes due to different factors. Political and economic stability are among the factors.

4. Name three effects of a weak currency? (6)

• A weak currency will stimulate manufacturing and export to areas with stronger currency. • There will be an increase in manufacturing and job creation if the demand for exports increases. • More foreign tourists will be able to afford to visit countries with weak currencies

9. List three effects of a strong currency? (6)

• Imports become cheaper for the countries with strong currencies. • Imported products and services, especially fuel, become more affordable. • Fewer foreign tourists will be able to afford to visit countries with strong currencies

MULTIPLY EFFECT

Money spent by a tourist circulates through a country's economy. Money spent in a hotel helps to create jobs directly in the hotel, but it also creates jobs indirectly elsewhere in the economy.

2. What does the phrase Gross Domestic Product mean? (4)

2. The GDP is a measure of a given country's national income. GDP is a measure of all the goods and services produced domestically, usually in a period of one calendar year. The components included are consumer spending, investment made by industry, value of exports minus value of imports, and government spending. (4)

1. What does the phrase foreign exchange mean? (4)

1. The phrase foreign exchange refers to the exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as "forex". (4)

3. What do you understand by the phrases strong and weak currencies? (4)

3. Strong currency, also known as a hard currency, refers to a currency when it is worth more relative to other currencies. A weak currency, also known as a soft currency, is a currency with value that has depreciated significantly over time against other currencies and will fluctuate erratically or depreciate against other currencies. (4)

5. List the different factors that determine exchange rates? (14)

5. Inflation, Interest rates, Trade balance, Terms of trade, Government debt, Political and economic instability, Employment outlook of a country. (14)

6. List two effects a fall in the value of the South African rand has on tourism? (4)

6. It makes international travel for South Africans more expensive, It makes travelling in South Africa cheaper for foreign tourists. (4)

7. Name the two ways exchange rates are quoted? (4)

7. The bank buying rate, The bank selling rate. (4)

MAJOR CURRENCIES OF THE WORLD

Countries have their own unique currency.

10. What is the multiplier effect and its link to the GDP? (4)

Every time there is an injection of new demand into the circular flow there is likely to be a multiplier effect. This is because an injection of extra income leads to more spending, which creates more income, and so on. The multiplier effect refers to the increase in final income arising from any new injection of spending. (4)

Fluctuations continued...

Example: When there is political unrest in a county, it can affect exchange rate and the currency becomes weak

FOREIGN CURRENCY This is the currency (money) that is being used by a foreign country that is not yours.

Example: When you choose to visit Britain you must convert(change) your currency (rands) to their currency in order to pay for good and services.

LOCAL CURRENCY This is the currency that is being used by a specific country.

The people living in this county use this currency to pay for goods and services. They have to convert(change) their foreign currency to the local currency in order to pay for goods and services

EXCHANGE RATE

This is the value of a country's currency in relation to another currency. The rate is used to determine which currency is strong or weak Example: Britain pound (₤) = 17.28 Zimbabwe dollar$ = 0.05

FACILITIES WHERE FOREIGN CURRENCY CAN BE EXCHANGED....

Tourists needs to exchange their currency to local currency. There are few areas where tourists can exchange their foreign currency: 1. Major banks 2. Authorised travel agents 3. Foreign exchange kiosks 4. Major hotels 5. Cruise ships 6. Authorised foreign exchange dealers 7. Foreign exchange kiosks at airports

How does money spend by international tourists benefit locals?

Tourists spent their money on goods and services when visiting South Africa. They spent their money on transport, accommodation, food, activities and souvenirs. They buy these from businesses which has employed local people. Local people get salaries and wages to support their families. (Local people spent their money in local businesses which in turn contribute to country GDP)

Foreign exchange continues...

When foreign tourists from USA visit South Africa, they will be bringing along their foreign currency which is American dollars. In South Africa we do not accept dollars for payment at any of the tourism facilities. American tourists need to convert(change) their foreign currency to rands.