The Value of Rand

21

Rand is the currency of South Africa and they are being used with flexible exchange rates with the forces of demand and supply swaying the price lower of higher in relation to another currency. One of the more attributable force in the exchange rates of this currency is the local economy country’s goods and services as determinants of its value thus linking it closely to the growth of the national income or the gross domestic products. The exchange rates strengthen when the local economy is able to attract foreign capital but if the local economy is not doing well, then the inflation rates will exterminate the benefits of high interest rates to foreign investors.

Since the present situation in the country includes an account deficit that grows bigger by the day as the government spends on foreign trade than what is can earn, they are forced to borrow from other foreign sources. This is the reason why there are more foreign currency needed than what is actually coming from sales of exports so that the demand for more currency has led to the depreciation of its currency’s value. The value of a currency is based on the performance of its economy and some factors such as political instability and other major problems will lessen the confidence of foreign investors and therefore reduce the inflow of your cash.

These foreign investors seeks to invest in countries with stable economy and predictable economic policies. Foreign exchange have been driven by decisions of traders and the decision to sell or buy a currency have a marked effect. Because of the fact that there is slowed economic growth for South Africa because of the effect of lower oil price and poor market for their products, they have been exposed to the fall of these commodities and is expected that the value of their currency will decline farther.

The weak rand compared to other foreign currencies especially the US dollar have implications locally that may lead to increase in the inflation rates such that the prices of commodities may increase, imported goods become more expensive and the USD to ZAR interest rates are lower in order to attract investors.

There are more implications to the daily lifestyle of South Africans because of the 50 usd to zar increasing inflation rates because the raw materials will become cheaper for most foreign companies investing in export, there will be cheap labor and the government will have to focus more in attracting foreign investors rather than supporting local businesses.

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