ECONOMICS 120
SUMMARY
CHAPTER 19: BALANCE OF PAYMENTS AND
THE EXCHANGE RATE
LEARNING OUTCOMES:
• How currencies of different nations are exchanged when international transactions take place.
• About the balance sheet South Africa uses to account for the international payments it makes and
receives
• How exchange rates are determined in currency markets
• The difference between flexible exchange rates, fixed exchange rates and managed floating exchange
rates
We will look at the highly important monetary/financial aspect of international trade.
To but a product or service from another country we essentially need the currency of that country to pay for it.
FINANCING INTERNATIONAL TRADE
SOUTH AFRICAN EXPORT TRANSACTION
FOREIGN IMPORTER >>EXCHANGES DOMESTIC CURRENCY TO RANDS WITH DOMESTIC
BANK ($100000=R1500000)>>PAYS IN CHEQUE FOR PRODUCT IN RANDS TO SOUTH AFRICAN
EXPORTER
South African exports create a foreign demand for rand, and the fulfilment of that demand increases the supply
of foreign currencies owned by South African banks and available to South African buyers.
Domestic banks buy currencies from foreign importer to sell to foreign banks that trade in the currency market.
SOUTH AFRICAN IMPORT TRANSACTION
SOUTH AFRICAN IMPORTER>> EXCHANGES RANDS WITH FOREIGN CURRENCY WITH
DOMESTIC BANK>>PAYS IN CHEQUE FOR PRODUCT IN FOREIGN CURRENCY TO FOREIGN
EXPORTER
South African imports create domestic demand for foreign currencies, and the fulfilment of that demand reduces
the supplies of foreign currencies held by South African banks and available to South African consumers.
Any nation's exports pay for its imports. Exports provide the foreign currencies needed to pay for imports.
THE BALANCE OF PAYMENTS
SUMMARY
CHAPTER 19: BALANCE OF PAYMENTS AND
THE EXCHANGE RATE
LEARNING OUTCOMES:
• How currencies of different nations are exchanged when international transactions take place.
• About the balance sheet South Africa uses to account for the international payments it makes and
receives
• How exchange rates are determined in currency markets
• The difference between flexible exchange rates, fixed exchange rates and managed floating exchange
rates
We will look at the highly important monetary/financial aspect of international trade.
To but a product or service from another country we essentially need the currency of that country to pay for it.
FINANCING INTERNATIONAL TRADE
SOUTH AFRICAN EXPORT TRANSACTION
FOREIGN IMPORTER >>EXCHANGES DOMESTIC CURRENCY TO RANDS WITH DOMESTIC
BANK ($100000=R1500000)>>PAYS IN CHEQUE FOR PRODUCT IN RANDS TO SOUTH AFRICAN
EXPORTER
South African exports create a foreign demand for rand, and the fulfilment of that demand increases the supply
of foreign currencies owned by South African banks and available to South African buyers.
Domestic banks buy currencies from foreign importer to sell to foreign banks that trade in the currency market.
SOUTH AFRICAN IMPORT TRANSACTION
SOUTH AFRICAN IMPORTER>> EXCHANGES RANDS WITH FOREIGN CURRENCY WITH
DOMESTIC BANK>>PAYS IN CHEQUE FOR PRODUCT IN FOREIGN CURRENCY TO FOREIGN
EXPORTER
South African imports create domestic demand for foreign currencies, and the fulfilment of that demand reduces
the supplies of foreign currencies held by South African banks and available to South African consumers.
Any nation's exports pay for its imports. Exports provide the foreign currencies needed to pay for imports.
THE BALANCE OF PAYMENTS
