Effects of Exchange Rate on Financial Assets Prices free essay sample

Exchange rate refers to the price of one currency in terms another (Fourie and Burger, 2009) for example $US 1= R 7,81. Financial assets price is the value of commodities such as oil, gold and platinum. We will write a custom essay sample on Effects of Exchange Rate on Financial Assets Prices or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page In addition, macroeconomic fundamentals refer the macroeconomic objectives always pursued by the government to control and stabilise the economy for instance they include employment and inflation among others. The essay is going to give a discourse expounding the casual relationship between the exchange rate and financial assets prices and the macroeconomic fundamentals. On the other hand, in the case of a depreciation or devaluation the price of oil (import commodity) increases while those ones of platinum and gold (export commodities) decrease in the foreign market thereby increase its demand. In addition, there seem to be a contrary relationship between the external value of the rand and the price oil and at the same time a positive relationship is seen between the exchange rate and gold and platinum. These relationships tend to inflict positive and negative effects on the economy if not well stabilised. ii) Local and foreign stock prices.Considering the Johannesburg Stock Exchange (JSE) market if the South African rand depreciates or loses value against other currencies, the price for local stock tends decrease and becomes inexpensive to holders of foreign currency for example US dollar. In this regard foreign stock prices become relatively expensive as one would need more of the South African rand to purchase these shares on the stock market. On the contrary, in the case of an appreciation or revaluation local stock prices increase whereas foreign stock prices decrease as one would need few Rands to buy these stocks. ii) Bond prices Bond refers to a promise to pay a specified amount at a specified future date (Fourie and Burger, 2009). If the price of bonds decrease influenced by interest rate this tends to appreciate the external value of the Rand as investors would want to ke ep their wealth in monetary form. As the price of bonds take a surge this forces the exchange rate to decrease as more and more people would find it safe to invest in bonds rather than holding money in the form of hoard.The relationship between bond prices and exchange rate is an indirect one as the two opposes each other. The association of the exchange rate and bond prices affect both locally and foreign investors. In this respect, when the rand appreciates foreign investors find it difficult to acquire local wealth in the form of bonds. iv) Housing prices The exchange rate and housing prices association is highly influenced by the movements in the exchange rate. In this regard, when exchange rate increases housing prices tend to fall as this makes the price cheap to buy.