Global currency Essay Example | Topics and Well Written Essays - 750 words

Global currency - Essay Example From the chart above, there are signs that the Rand attempts to gain against the US Dollar periodically by moving down to around 6.5 to a Dollar. However, in most of the times, it fluctuates and reaches highs of about 7.3 against the Dollar. Over the past month or so though, the Rand has really lost grounds to the US Dollar and has risen to highs of about 8.4 per Dollar. This indicates that there is potential for further escalations in the value of the Dollar against the Rand. The Rand can therefore be seen as a weaker currency in relation to the US Dollar and on the global markets. Figure 2 above shows the relationship between the South African Rand and the European common currency, the Euro. It is also seen that the Euro is stronger than the Rand. On the average, the Rand trades at about 9.5 to the Euro. Although there were times that the Rand gained and got to almost 8.5 to the Euro, most of the time, the Rand remains above the 9.5 mark. However, in the past three months, the Euro has strengthened further at levels over R10 per Euro. It is currently trading at 11 Rands per Euro. This shows that there is room for further appreciation of the Euro against the Rands. Aliber stated in 1970 that â€Å"the stronger a countrys currency, the more likely it is to invest in another country and the weaker the currency, the less likely it is to invest in another country† (Goldstein,1991 p1976). This assumption Aliber made is tried and tested in numerous empirical tests. Aliber & Click (1993, p97) identifies that there is a capital market bias towards businesses from a stronger currency nation. In this case, it will be better for a US based business to operate in South Africa. Sharan (2002, p70) explains that the reason why businesses from countries with stronger currencies succeed in weaker currency nation is that it is much more easier to capitalize income in a weaker