Answer to Question #247685 in Macroeconomics for Lavhe

Question

Expectations of political unrest in South Africa’s upcoming national election is likely to cause a/an ...... in the rand/dollar exchange market.

• A. rise in the value of the rand
• B. overvaluation of the rand
• C. appreciation of the rand
• D. depreciation of the rand

Answer 1

Solution:

The correct answer is D. depreciation of the rand.

Currency depreciation refers to a fall in the value of a currency in terms of its exchange rate versus other currencies. It can arise due to factors such as economic fundamentals, changes in interest rate, and political instability.

 

Expectations of political unrest in South Africa’s upcoming national election will possibly result in depreciation of the rand because of the political instability expected. This is because political instability will lead to high interest rates and currency depreciation as people begin to take their money out of the country for fear of losing their investments.