1.1 One of the characteristics of the foreign exchange market is that exchange rates are volatile, making it difficult for businesses to plan - especially where consignments take days or weeks before being received. Spot rates and forward rates are some of the options available for traders to deal with the volatility in the exchange rate. Discuss what spot rates and forward rates are, and when they can be used.

1.2 Assume you are in charge of importation in a South African company. You are importing an expensive machine from the United States of America and you have the option to use a spot rate or forward rate. Based on your understanding of the performance of the rand, which rate would you prefer and why? Explain the advantages and disadvantages of each option in detail and justify your choice.