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Floating exchange rate

Explain how the following events would effect the market for South Africa's currency, the rand, assuming a floating exchange rate.

a) a rise in the US inflation causes many US residents to seek to buy gold, which is a major South African export, as hedge is against inflation.

The rand appreciates
The rand does not change in value
The rand depreciates

B)Major discoveries of the highest quality diamonds ever found occur in Russia & Central Asia, causing a significant decline in purchases of South African diamonds.

The rand appreciates
The rand does not change in value
The rand depreciates

c)Which of the following 2 events could have generated the decrease in the demand for the baht?

A reduction in foreign purchases of Thai export goods
An increase in foreign purchases of securities issued by Thailand's government
An decrease in foreign purchases of financial services provided by Thai banks.
An increase in foreign purchases of Thai stocks and bonds.

Solution Preview

Explain how the following events would effect the market for South Africa's currency, the rand, assuming a floating exchange rate.

a) a rise in the US inflation causes many US residents to seek to buy gold, which is a major South African export, as hedge is against inflation.

The rand appreciates
The rand does not change in value
The rand depreciates
Answer: The rand appreciates
US residents will buy South African gold by first converting $ to rand (The ...

Solution Summary

Answers to 3 multiple choice questions on Floating exchange rate that deal with.
1) Effect of US inflation, major discoveries of the highest quality diamonds ever found occur in Russia & Central Asia, causing a significant decline in purchases of South African diamonds on Rand;
2) decrease in the demand for the baht

$2.19