Study guide

Module 06: Foreign exchange

Currency Conversion and Exchange Rates
Currency conversion
 Currency conversion is the process of changing one currency into another. The
exchange rate determines how much of one currency you can get in exchange for
another.
 To convert USD to ZAR, you need to multiply the amount in USD by the exchange
rate.
o If the exchange rate is 1 USD = 18.50 ZAR, then: 100 USD × 18.50 = 1850
ZAR

Rounding off
 When performing currency conversions, always round off the final answer to two
decimal places.
 Example: 12.1789 ZAR becomes R12.18

Bank Selling Rate (BSR) and Bank Buying Rate (BBR)

Bank Selling Rate (BSR)
 This is the rate at which a bank sells foreign currency to you.
 It is the higher rate because the bank needs to make a profit.
 Example: If you want to buy USD from a bank and the BSR is 18.50 ZAR per USD,
you will pay 18.50 ZAR for every 1 USD.

Bank Buying Rate (BBR)

 This is the rate at which a bank buys foreign currency from you.
 It is the lower rate because the bank is purchasing the currency from you.
 Example: If you want to exchange 100 USD to ZAR at the BBR of 17.80 ZAR per
USD, you will receive 100 × 17.80 = R1,780.

Cheat sheet:

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Effect of Exchange Rates on International Tourism
Exchange rates affect both inbound and outbound tourists. A strong or weak currency
can impact the cost of travel.

Inbound Tourism
 Weak ZAR (Rand): When the ZAR is weak compared to foreign currencies (e.g.,
USD, GBP), South Africa becomes cheaper for international tourists. This
encourages more foreign visitors to come to South Africa.
 Strong ZAR: A strong ZAR makes South Africa more expensive for foreign
tourists, which may reduce the number of visitors.

Outbound Tourism
 Weak ZAR: South Africans may find it more expensive to travel abroad, especially
to countries with stronger currencies (e.g., USD, EUR). This may reduce the
number of South Africans traveling overseas.
 Strong ZAR: A strong ZAR makes foreign destinations cheaper for South Africans,
which may encourage more people to travel abroad.

Example:
 If the ZAR weakens, a 1,000 USD trip to the USA could cost more in ZAR, making it
less affordable for South Africans.
 If the ZAR strengthens, the same 1,000 USD trip becomes cheaper in ZAR, making
international travel more attractive.

Different Forms of Payment When Traveling

1. Electronic Fund Transfers (EFT)
 Definition: A direct transfer of money from one bank account to another.
 Advantages: Secure, fast, no physical currency required.
 Disadvantages: May involve fees, and delays can occur depending on international
transfer systems.

2. Telegraphic transfers (SWIFT)

 Definition: An international money transfer system used by banks to send funds
across borders.
 Advantages: Secure and reliable.
 Disadvantages: High fees and possible delays.

3. Internet payments (PayPal, Credit Card, etc.)

 Advantages: Convenience, no need to carry cash, accepted globally.
 Disadvantages: May involve service charges, requires internet access.

4. Foreign bank notes (Cash)

 Advantages: Widely accepted, no transaction fees.
 Disadvantages: Risk of theft, currency exchange fees.

5. Credit cards (Visa, MasterCard, American Express, Diners Club)

 Advantages: Convenient, widely accepted, may offer travel rewards.
 Disadvantages: High-interest rates, possible foreign transaction fees.

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6. Preloaded foreign currency debit cards
 Examples: Cash Passport Card, Travel Wallet.
 Advantages: Prepaid, avoid exchange rate fluctuations, secure.
 Disadvantages: Limited acceptance, fees may apply.

7. Zapper / Snapscan payments

 Advantages: Quick, secure, paperless transactions.
 Disadvantages: Requires internet access, not accepted everywhere.

8. WeChat payments (China)

 Advantages: Convenient, widely accepted in China.
 Disadvantages: Limited use outside of China.

9. PayPal payments
 Advantages: Global acceptance, secure transactions.
 Disadvantages: Fees for currency conversion.

10. Tap with smartphones (Apple Pay, Samsung Pay)

 Advantages: Fast, secure, no physical cards required.
 Disadvantages: Requires a smartphone with NFC capability.

Link Between Foreign Exchange Earnings and the Economy

Gross Domestic Product (GDP)
 Definition: The total value of goods and services produced by a country in a year.
 Impact on economy: A high GDP means the country is economically strong, and
there is more money for tourism and foreign exchange earnings.

Multiplier effect
 Definition: When foreign tourists spend money in South Africa, the money circulates
and generates more economic activity, creating jobs and boosting local businesses.
 Example: A tourist who spends on accommodation, meals, and transportation helps
create jobs and business for local service providers.

Strong and Weak Rand

 Strong Rand: Means 1 ZAR buys more foreign currency, making travel abroad
cheaper but making South Africa more expensive for foreign tourists.
 Weak Rand: Means 1 ZAR buys less foreign currency, making South Africa cheaper
for tourists but making travel abroad more expensive for South Africans.

Fluctuations in exchange rates

 Exchange rates fluctuate due to global economic factors such as inflation, interest
rates, and international trade balances.
 Example: During periods of political instability, a country’s currency may weaken,
leading to higher costs for foreign tourists.

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Relative strength and weakness of currency
 A strong currency means it is worth more in comparison to other currencies. A
weak currency means it is worth less.
 Example: If the ZAR is weak, it may make South Africa a cheaper destination for
tourists but more expensive for South Africans to travel abroad.

Currency rate sheet interpretation

 A currency rate sheet provides exchange rates between different currencies. It’s
important to understand how to read these rates to make accurate conversions for
travel planning and transactions.
 Example: If the rate of USD to ZAR is 18.50, 1 USD equals 18.50 ZAR. To convert
500 USD to ZAR, multiply 500 by 18.50.

Terminology
Key terminology
The following terms are used in the module. Use the following terms often to improve the learner’s
tourism discourse.
Exchange rate The value of one currency in relation to another.
Bank Selling Rate (BSR) The rate at which a bank sells foreign currency to a customer.
Bank Buying Rate The rate at which a bank buys foreign currency from a customer.
(BBR)
Currency conversion The process of exchanging one currency for another.
Major currencies The most widely traded currencies, e.g., USD ($), GBP (£), EUR (€), JPY
(¥), AUD ($), CNY (¥), BWP (Pula).
Electronic Fund A digital transfer of money from one account to another.
Transfer (EFT)
Telegraphic Transfer A secure electronic international money transfer.
(SWIFT)
Internet payment Payment made using an online banking system.
Foreign bank notes Physical cash in a foreign currency.
Credit card A card that allows users to borrow money for purchases.
Preloaded foreign card A debit card loaded with foreign currency for travel use.
Zapper/SnapScan Mobile payment apps that use QR codes for transactions.
WeChat Pay A Chinese mobile payment system for digital transactions.
PayPal An online platform for secure money transfers.
Tap Payment (Apple A contactless payment method using smartphones or smartwatches.
Pay, Samsung Pay, etc.)
Gross Domestic The total value of goods and services produced in a country.
Product (GDP)
Multiplier effect The economic impact of money circulating within an economy.
Strong rand When the South African Rand (ZAR) has a high value compared to foreign
currencies.
Weak rand When the South African Rand (ZAR) has a low value compared to foreign
currencies.
Currency fluctuation Changes in the exchange rate over time.
Currency strength A measure of how valuable a currency is compared to others.