Question

If the spot exchange rate changes from S0(ZAR/USD) = ZAR 10.00/USD to S1(ZAR/USD) = ZAR 12.50/USD, then South African rand (ZAR) appreciated in value by 25 percent.

True or False?

Answer 1

Initial value, 1$ = ZAR 10

Future value 1$ = ZAR 12.50

Change % = [final value - Initial value] *100 / Initial value

Change % = [12.50 - 10] * 100 / 10

Change % = 0.25 * 100 = 25%

It takes ZAR 10 to purchase 1 $ initially, then after 1 year it takes 12.50 ZAR to purchase 1 $. It means value of ZAR depreciated as the cost of purchasing a dollar increased and also the value of South African Rand depreciated against dollar.

So, South African rand (ZAR) depreciated in value by 25%

So, The statement is False