ECS3702 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 - DUE 6 September 2024
ECS3702 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 - DUE 6 September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations. Ensure your success with us...
ECS3702 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 - DUE 6 September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations. Ensure your success with us...
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International Finance
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, ECS3703 Assignment 2 (COMPLETE ANSWERS) Semester 2
2024 - DUE August 2024 ; 100% TRUSTED Complete, trusted
solutions and explanations.
Question 1 Assume that South Africa trades with the rest of the
world and has a deficit in its trade balance. With the aid of a
diagram, explain how South Africa would use exchange rates to
correct the
deficit……………………………………………………….[25
marks]
To explain how South Africa might use exchange rates to
correct a deficit in its trade balance, let's break it down into steps
and use a diagram for clarity.
1. Understanding the Trade Deficit
A trade deficit occurs when a country’s imports exceed its
exports. For South Africa, this means it is importing more goods
and services than it is exporting, leading to an outflow of money
and potentially weakening the local currency.
2. Impact of Exchange Rates on Trade Balance
Exchange rates play a crucial role in influencing trade balances.
If South Africa has a trade deficit, it can use exchange rate
adjustments to help correct this imbalance. Here's how it works:
• Depreciation of the Currency: If the South African Rand
(ZAR) depreciates (weakens) relative to other currencies,
South African exports become cheaper for foreign buyers,
while imports become more expensive for domestic
consumers. This can potentially increase export volumes
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