Based on the following table and how the NZD measures to other currencies, would
ID: 2789977 • Letter: B
Question
Based on the following table and how the NZD measures to other currencies, would it be worth trading in the open market? It appears the currency has slowly started to depreciate from a month ago.
NEW ZEALAND DOLLAR (1 NZD)
21-Oct
14-Nov
21-Nov
U.S. Dollar
0.69636
0.68839
0.68319
Japanese Yen
79.04697
78.12506
76.7346
Russian Ruble
39.96541
41.38615
40.4018
Chinese Yuan
4.610216
4.56832
4.52904
Mexican Peso
13.22937
13.17698
12.8371
Euro
0.59092
0.58515
0.58167
Thai Baht
23.11147
22.75708
22.3741
South African Rand
9.51684
9.90642
9.54697
British Pound
0.52808
0.52433
0.51598
Swiss Franc
0.68549
0.68246
0.67742
South Korean Won
789.13849
767.31683
744.49842
NEW ZEALAND DOLLAR (1 NZD)
21-Oct
14-Nov
21-Nov
U.S. Dollar
0.69636
0.68839
0.68319
Japanese Yen
79.04697
78.12506
76.7346
Russian Ruble
39.96541
41.38615
40.4018
Chinese Yuan
4.610216
4.56832
4.52904
Mexican Peso
13.22937
13.17698
12.8371
Euro
0.59092
0.58515
0.58167
Thai Baht
23.11147
22.75708
22.3741
South African Rand
9.51684
9.90642
9.54697
British Pound
0.52808
0.52433
0.51598
Swiss Franc
0.68549
0.68246
0.67742
South Korean Won
789.13849
767.31683
744.49842
Explanation / Answer
When a currency depreciates, then there is a loss in the value of the currency with respect to the other currencies or foreign currencies. From the table it is clear that the value of 1 NZD has been losing its value with respect to US Dollars, Japanese Yen, Chinese Yuan, Mexican Peso, Euro, Thai Baht, British Pound, Swiss Franc and South Korean Won. In other words, the NZD has been depreciating in terms of the above mentioned currencies. However, in case of Russian Ruble and South African Rand the value has increased from 21st Oct to 14th Nov and then decreased on 21st Nov. The currency depreciation will make New Zealand’s exports cheaper and imports more expensive. In such a situation, trading NZD in the open market is not suitable as the value is decreasing. The value might be reducing due to changes in the demand and supply of the currency. The trading of NZD in the open market will be risky as there is a chance of losing money. Thus, trading NZD in such a situation should be avoided and any other transaction that needs to be done in NZD should be hedged against any risk.
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