A) Economic Analysts are predicting that the value of the SA Rand (ZAR) will fall relative to most major currencies in the world due to the impact of Covid-19 given the poor growth prospects of South Africa. Assume this is true for the exchange rate between the ZAR and the GBP (i.e. the GBP). Assume further that the response of the UK to a strengthening GBP is to decrease interest rates.

Explain the impact on the ZAR value of these bonds given the changes alluded to above. As a financial advisor, would you advise your client to invest in GBP-denominated Bonds?

B) Explain why Purchasing Power Parity is better known as a long run phenomenon than it is a short run phenomenon.

C) The following is an extract of foreign exchange rates for the ZAR per unit of foreign currency as published by First National Bank (FNB) on Thursday 23 September 2020. With reference to the information in this table

• Calculate the Percentage Bid-Ask Spread for the USD:ZAR and the KES:ZAR.
• Explain why you would see the difference suggested in our calculation in the percentage Bid-Ask spread for these pairs of exchange rates as quoted by FNB.

USE ATTACHED RATES