4.1 differentiate between an exchange rate and the foreign exchange market 4.2 e

Question

4.1 differentiate between an exchange rate and the foreign exchange market
4.2 explain how changes in exchange rates can influence exports and imports in your country
4.3 discuss any five arguments for against the use of trade barriers by the government of your country
4.4 as a result of pressure from the southern african clothing and textile workers union (SACTWU) ,the south african government has decided to increase the tariff on textiles. explain who would gain and who would lose as as results of the decision taken by the south african government

Explanation / Answer

4.1. Exchange rate is the rate at which the currency of one country exchanges for the currency of another country. Foreign exchange market refers to the market at which the currencies of one country is bought or sold for one country is exchanged for the currency of another country.

4.2 Changes in exchange rate affect the foreign trade of a country. When the currency of a country appreciates, imports become cheaper as the purchasing power of the domestic currency goes up with respect to the purchasing power of the foreign currency. However, when the currency of a country appreciates, export becomes less profitable. On the other hand, when the currency of a country depreciates, imports become costlier as the purchasing power of the domestic currency goes down with respect to the purchasing power of the foreign currency. However, when the currency of a country depreciates, export becomes more profitable.

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