, ECS3703 Assignment 2 (COMPLETE ANSWERS)
Semester 2 2025 - DUE September 2025; 100%
TRUSTED Complete, trusted solutions and
explanations.
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.
1. State the relevant market and convention (2 marks)
We analyse China’s foreign-exchange market for the South African rand
(ZAR). The price shown is RMB per ZAR (how many RMB are needed
to buy one rand). In this market:
Demand for ZAR comes primarily from Chinese importers who
need rand to pay South African exporters.
Supply of ZAR comes from South African residents (exporters,
investors) who sell rand in China to obtain RMB.
2. Describe the policy shock and its immediate trade effect (3 marks)
China increases tariffs on imports from South Africa. Higher tariffs
make South African goods more expensive in China so Chinese
imports from South Africa fall. That directly reduces the need of
Chinese agents to obtain rand to pay South African sellers.
3. Show how each curve moves and why (6 marks)
Demand for ZAR falls (D₀ → D₁, leftward shift). Reason:
Chinese importers need fewer rand to buy South African goods
Semester 2 2025 - DUE September 2025; 100%
TRUSTED Complete, trusted solutions and
explanations.
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.
1. State the relevant market and convention (2 marks)
We analyse China’s foreign-exchange market for the South African rand
(ZAR). The price shown is RMB per ZAR (how many RMB are needed
to buy one rand). In this market:
Demand for ZAR comes primarily from Chinese importers who
need rand to pay South African exporters.
Supply of ZAR comes from South African residents (exporters,
investors) who sell rand in China to obtain RMB.
2. Describe the policy shock and its immediate trade effect (3 marks)
China increases tariffs on imports from South Africa. Higher tariffs
make South African goods more expensive in China so Chinese
imports from South Africa fall. That directly reduces the need of
Chinese agents to obtain rand to pay South African sellers.
3. Show how each curve moves and why (6 marks)
Demand for ZAR falls (D₀ → D₁, leftward shift). Reason:
Chinese importers need fewer rand to buy South African goods
