3.1 Differentiate between an exchange rate and the foreign exchange market. 3.2.

Question

3.1 Differentiate between an exchange rate and the foreign exchange market.
3.2. Explain how changes in exchange rates can influence exports and imports in South Africa.
3.3 Discuss any 5 arguments for and against the use of trade barriers by government in South Africa.
3.4 As a result of pressure from the south 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 a result of the decision taken by south african government.

Explanation / Answer

1. A exchange rate is the cost of a country's cash regarding money. In this manner, a conversion standard has two segments, the residential money and outside cash, and can be cited either straightforwardly or in a roundabout way. A foreign exchange rate is the cost of the residential money expressed as far as another cash. At the end of the day, an outside conversion scale contrasts one cash and another to demonstrate their relative qualities. Since institutionalized monetary forms far and wide buoy in an incentive with request, supply, and buyer certainty, their qualities change in respect to each after some time.

2. The exchange rate affects the exchange overflow (or shortage), which thus influences the swapping scale, et cetera. By and large, notwithstanding, a weaker residential cash invigorates fares and makes imports more costly. On the other hand, a solid household money hampers fares and makes imports less expensive.

3. Contentions for trade barrier

a. To shield residential employments from "shoddy" work abroad

b. To enhance an exchange shortfall

c. To ensure "baby ventures."

d. Insurance from "dumping."

e. To procure more income

Contentions against trade barrier:

1.     Market mutilation and loss of allocative effectiveness

2.     Higher costs for shoppers: Tariffs push up the costs for buyers and protect wasteful divisions from certifiable rivalry. They punish remote makers and support a wasteful portion of assets both locally and all around.

3.     Reduction in showcase access for makers: Export sponsorships discourage world costs and harm yield, benefits, venture and occupations in numerous lower-pay creating nations that depend on sending out essential and produced merchandise for their development. Protectionism can be inadequate and expensive methods for maintaining employments.

4. As a result of tariff imposed by South African government, the producer of clothing and textile industries will be benefitted and the consumers of these products in the country will have to shell more money for the same products out of their pockets.

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