THE BMZ ACADEMY
THE BMZ ACADEMY
053 8213
BMZ ACADEMY 061 262 1185/068 053 8213Page 1 of 16
, THE BMZ ACADEMY
Table of Contents
QUESTION 1 [15 MARKS] .......................................................................................... 3
QUESTION 2 [10 MARKS] .......................................................................................... 5
QUESTION 3 [25 MARKS] .......................................................................................... 8
References ............................................................................................................ 14
BMZ ACADEMY 061 262 1185/068 053 8213Page 2 of 16
, THE BMZ ACADEMY
QUESTION 1 [15 MARKS]
Effect of Chinese Tariffs on South African Exports to China on China’s Foreign
Exchange Market
When the Chinese government increases tariffs on South African exports, South
African goods become more expensive in the Chinese market. This reduces China’s
demand for South African imports. In the foreign exchange (FOREX) market, Chinese
importers usually exchange Yuan (CNY) for South African Rand (ZAR) to pay
exporters. A fall in imports therefore reduces the demand for ZAR (Krugman &
Obstfeld, 2022).
Under a flexible exchange rate system, the reduced demand for ZAR causes the
demand curve for ZAR in China’s FOREX market to shift leftward. The supply curve
remains unchanged. The new equilibrium exchange rate (R₂) is lower than the initial
rate (R₁), meaning the ZAR depreciates while the Yuan appreciates (Mankiw, 2021).
This illustrates how protectionist policies like tariffs alter trade flows and currency
markets, often reducing export competitiveness and weakening the exporter’s
currency (World Bank, 2023).
BMZ ACADEMY 061 262 1185/068 053 8213Page 3 of 16
THE BMZ ACADEMY
053 8213
BMZ ACADEMY 061 262 1185/068 053 8213Page 1 of 16
, THE BMZ ACADEMY
Table of Contents
QUESTION 1 [15 MARKS] .......................................................................................... 3
QUESTION 2 [10 MARKS] .......................................................................................... 5
QUESTION 3 [25 MARKS] .......................................................................................... 8
References ............................................................................................................ 14
BMZ ACADEMY 061 262 1185/068 053 8213Page 2 of 16
, THE BMZ ACADEMY
QUESTION 1 [15 MARKS]
Effect of Chinese Tariffs on South African Exports to China on China’s Foreign
Exchange Market
When the Chinese government increases tariffs on South African exports, South
African goods become more expensive in the Chinese market. This reduces China’s
demand for South African imports. In the foreign exchange (FOREX) market, Chinese
importers usually exchange Yuan (CNY) for South African Rand (ZAR) to pay
exporters. A fall in imports therefore reduces the demand for ZAR (Krugman &
Obstfeld, 2022).
Under a flexible exchange rate system, the reduced demand for ZAR causes the
demand curve for ZAR in China’s FOREX market to shift leftward. The supply curve
remains unchanged. The new equilibrium exchange rate (R₂) is lower than the initial
rate (R₁), meaning the ZAR depreciates while the Yuan appreciates (Mankiw, 2021).
This illustrates how protectionist policies like tariffs alter trade flows and currency
markets, often reducing export competitiveness and weakening the exporter’s
currency (World Bank, 2023).
BMZ ACADEMY 061 262 1185/068 053 8213Page 3 of 16
