DQ1: Exchange Rates.
A. I spent my recent holiday vacation in South Africa, which is quite an inexpensive destination with various world class financial institutions that offer attractive exchange rates. Upon arrival at the O. R. Tambo International Airport in Johannesburg, I found a forex bureau that offered forex exchange at 0% percent commission to travelers. I exchanged 2000 US dollars and received 21,400 South African Rand (R).
During the next four weeks of my vacation, I exchanged currency once at a forex bureau that charged 5% commission and later found out that I could exchange currency in Automated Teller machines at normal bank rates with no commission. I did this by withdrawing money in local currency using my MasterCard debit card. The only charges incurred were fixed withdrawal fees.
B. Exchange rates and generally the level of South African currency are determined by the terms of trade. According to Aron et al (2000), the terms of trade, openness, and domestic credit are major determinants of exchange rate variations in South Africa. However, the terms of trade explain the largest proportionate variations in real exchange rates (MacDonald and Ricci, 2003).
I found the unemployment rate graph under the Challenges Facing the Labor Market policy discussion to be of great interest. The chart indicates a decline in labor participation over the years but determining whether the decline is structural or cyclical is the problem. There is a cyclical component in labor force participation decline, and also due to labor underutilization. The structural part of the decline is attributed to demographic factors such as aging of the baby boom generation. Labor force participation is thus expected to be broadly constant for the next few years with an expected cyclical rebound which will offset the trend decline (IMF Country Report, 2013, p.20). With respect to my career, I do expect that the trend will reverse and prevent a catastrophic state of massive unemployment which will affect the whole economy.
DQ3: Obstacles to Economic Development and Institutions supporting Economic Development.
According to the South African Department of Labor (DOL), in addition to the frail global economic recovery, some local social-economic factors have contributed to the slow economic growth. The high rate of unemployment and inequality are major obstacles to development. This is as a result of the labor unrest and commencement of un-procedural strikes that began in the mining sector and spread out to other sectors of the economy. In this respect, there was a significant drop in the country’s sovereign ratings, increased inflation levels, and recent economic data shows rising trade deficits.
DQ4: Exploring ECO372 Words, Expressions, Graphs, and Equations
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References:
Aron, J., & Elbadawi, I. (2000). Real and monetary determinants of the real exchange rate in South Africa. Oxford: University of Oxford.
Forbes Magazine - About Us. (n.d.). Forbes. Retrieved February 4, 2014, from http://www.forbes.com/fdc/about.html
Macdonald, R. (1998). What Determines Real Exchange Rates? The Long And The Short Of It. Journal of International Financial Markets, Institutions and Money, 8(2), 117-153.
Ramutloa, L. (2013, October 3). South Africa’s unemployment rate remains stubborn amidst a new economic trajectory. Department of Labour - South Africa. Retrieved February 2, 2014, from http://www.labour.gov.za/DOL/media-desk/media-statements/2013/south-africa2019s-unemployment-rate-remains-stubborn-amidst-a-new-economic-trajectory-2013-labour2019s-almb
SouthAfrica.info. (n.d.). Banks and foreign exchange in SA. Retrieved February 3, 2014, from http://www.southafrica.info/travel/advice/currency.htm#.UvQhRGKSweJ
