, ECS3703 Assignment 2 (COMPLETE ANSWERS) Semester 2
2025 – DUE September 2025 ;100% trusted ,comprehensive
and complete reliable solution with clear explanation
QUESTION 1 [15 MARKS]
Assuming that South Africa trades with China, use a fully labelled
diagram to explain what would happen to China's foreign exchange
market if the Chinese government decides to increase the tariffs
imposed on South African exports to China.
Full -labelled FX diagram for China’s market for South African rand
(ZAR). It shows price as CNY per ZAR and quantity as ZAR traded.
Download the diagram (PNG)
Explanation (15-mark outline):
1. Policy shock: China raises tariffs on imports from South Africa.
2. Trade effect: Chinese firms import fewer SA goods → they need
less ZAR to pay SA exporters.
3. FX market mechanics (in China):
o Demand for ZAR (by Chinese importers) shifts left from
D0D_0D0 to D1D_1D1.
o Supply of ZAR (driven mainly by SA demand for Chinese
goods, i.e., SA supplying ZAR to get CNY) is unchanged in
the short run.
4. New equilibrium:
2025 – DUE September 2025 ;100% trusted ,comprehensive
and complete reliable solution with clear explanation
QUESTION 1 [15 MARKS]
Assuming that South Africa trades with China, use a fully labelled
diagram to explain what would happen to China's foreign exchange
market if the Chinese government decides to increase the tariffs
imposed on South African exports to China.
Full -labelled FX diagram for China’s market for South African rand
(ZAR). It shows price as CNY per ZAR and quantity as ZAR traded.
Download the diagram (PNG)
Explanation (15-mark outline):
1. Policy shock: China raises tariffs on imports from South Africa.
2. Trade effect: Chinese firms import fewer SA goods → they need
less ZAR to pay SA exporters.
3. FX market mechanics (in China):
o Demand for ZAR (by Chinese importers) shifts left from
D0D_0D0 to D1D_1D1.
o Supply of ZAR (driven mainly by SA demand for Chinese
goods, i.e., SA supplying ZAR to get CNY) is unchanged in
the short run.
4. New equilibrium:
