Question 1: Briefly explain the term exchange rate and discuss the four factors that cause a change in a floating exchange rate. (12 Marks)

Question 2: Future Ltd is a coal mining company situated in South Africa. The company is not as large as some of their competitors, but because of their prime location on a large placer deposit containing coal in the earths crust, they are able to cope well with the demands of production and competition from other, larger mining corporations. Lately, several incidents resulting from labour disputes between mine management and the miners themselves have resulted in prolonged strikes. These strikes disrupt production and result in a drop in output that causes significant financial turmoil within the firm. Future Ltd are forced to sell off several prime acres above the rich deposit in order to ensure that they remain solvent. The CFO for Future Ltd calls an urgent meeting of the executive board. Several of Futures newer shareholders have expressed their dismay at the drop in their equity and want to know why their share value is not as it was when they originally invested. The CEO tasks the CFO with explaining to the shareholders why their equity has dropped and why their claims are being labelled as residual by the company. Discuss some of the reasons that the CFO might use to justify the drop in shareholder equity to their shareholders. (15 marks)