The Saudi Arabian government is promoting expansion of the private sector. It produces oil at low cost, yet its exports to South Africa have declined lately. South Africa has a floating foreign exchange rate, although its central bank has recently attempted to stop a sharp drop in its foreign exchange rate.
(a)[2]
Define the term floating foreign exchange rate.
(b)[4]
Explain two advantages a government may obtain from expansion of the private sector.
(c)[6]
Analyse why a country with low production costs may see its exports decline.
(d)[8]
Discuss whether a government ought to prevent a fall in its country’s foreign exchange rate.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Value of a currency” …