HR Paper
Weeks 6 & 7 – Zambia Trade Tour Assignment
Worksheet
The exchange rate of a country measures the external value of the currency. To a country such as Zambia the market for foreign exchange is very important. Its own currency, the kwacha is not a hard currency and thus not universally accepted in payment of debt. Zambia relies on generating foreign currency from selling exports to enable it to finance imports. The macroeconomic situation such as the balance of payments position, employment and inflation are all influenced by a country's exchange rate. Hence it becomes a key economic policy inconsistent.
Step 1
What is your understanding of the terms below?
Exchange rate
The price of one compared to another countries currency. If you have one exchange rate i.e. USD = $1.00 and the Euro Dollar =$1.3087 you would get .31 cents for every US dollar.
Fixed exchange rate
Is a rate system where the value of the currency against another currency remains exactly the same? In order for the rate to remain fixed governments have to hold large stocks of foreign exchange so they can interfere in order to hold the currency firm. (Bized, 2011)
Floating exchange rate
Is a currency exchange rate that is determined by the sellers and the buyers that does not have government interference? (Bized, 2011) If a country has a floating exchange rate system the outside value of the currency is permitted to find its own value against other currencies. (Bized, 2011)
Plot the value of the kwacha measured in terms of the US$ between:
1965 and 1980 and
1990 and 1998
Official and parallel exchange rates
1965
1980
1990
1998
Official exchange rate Local currency / US$, market rate, period average
0.71
0.79
30.29
1,861.61
Parallel market exchange rate (local currency / US$), period average 1.3
121.2
*Bized, 2011
Which particular exchange rate regime predominated in period 1 and which in period 2?
Period 1
In 1990 the exchange rate regime was more
Worksheet
The exchange rate of a country measures the external value of the currency. To a country such as Zambia the market for foreign exchange is very important. Its own currency, the kwacha is not a hard currency and thus not universally accepted in payment of debt. Zambia relies on generating foreign currency from selling exports to enable it to finance imports. The macroeconomic situation such as the balance of payments position, employment and inflation are all influenced by a country's exchange rate. Hence it becomes a key economic policy inconsistent.
Step 1
What is your understanding of the terms below?
Exchange rate
The price of one compared to another countries currency. If you have one exchange rate i.e. USD = $1.00 and the Euro Dollar =$1.3087 you would get .31 cents for every US dollar.
Fixed exchange rate
Is a rate system where the value of the currency against another currency remains exactly the same? In order for the rate to remain fixed governments have to hold large stocks of foreign exchange so they can interfere in order to hold the currency firm. (Bized, 2011)
Floating exchange rate
Is a currency exchange rate that is determined by the sellers and the buyers that does not have government interference? (Bized, 2011) If a country has a floating exchange rate system the outside value of the currency is permitted to find its own value against other currencies. (Bized, 2011)
Plot the value of the kwacha measured in terms of the US$ between:
1965 and 1980 and
1990 and 1998
Official and parallel exchange rates
1965
1980
1990
1998
Official exchange rate Local currency / US$, market rate, period average
0.71
0.79
30.29
1,861.61
Parallel market exchange rate (local currency / US$), period average 1.3
121.2
*Bized, 2011
Which particular exchange rate regime predominated in period 1 and which in period 2?
Period 1
In 1990 the exchange rate regime was more
References: Economics Association of Zambia, The Volatility of the Exchange Rate: A Case of the Zambian Kwacha, (2010), from www.eaz.org Mungule, K., The determinants of the real exchange rate in Zambia, The University of Zambia, (2004), from www.aerafrica.org Peng, Global, Student Edition, (2010) Bized, Development Glossary (A-C), [ Biz/ed Virtual Developing Country ], (2001), from http://www.bized.co.uk/virtual/dc/resource/glos1.htm#c Want2rich, Understand Finance, Inflation: a worry for retail investors as it reduces investment options and return, (2011), from http://www.want2rich.com/2011/05/personal-finance/inflation-a-worry-for-retail-investors-as-it-reduces-investment-options-and-return/ Tutor2u, Essential guidance on economics exam technique: AS Markets & Market Systems, Price Elasticity of Demand, (2012), from www.tutor2u.net/economics.html Bized, COMESA, The Common Market for Southern and Eastern Africa (COMESA), (2001), from http://www.bized.co.uk/virtual/dc/trade/comesa/issue1.htm Bized, Introduction, (2001), from http://www.bized.co.uk/virtual/dc/works/ers.htm Answers, Yahoo, Will there ever be a one world currency? Or how about an end to currency?, (2006), from http://answers.yahoo.com/question/index?qid=1006041403652