ECS3703
Assignment 02
Semester 2 2025
Due 2025
, Exchange Rate Dynamics, Transaction Risk Management, and
Macroeconomic Policy Responses in South Africa
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.
Diagram
Exchange Rate (CNY/ZAR)
Higher tariff reduces Simports
ZAR
⇒ Demand for ZAR falls
E0
P0
P1
E1
D0
D1 Quantity of Rand (ZAR)
Q1 Q0
Explanation
1. Market Set-up
The diagram illustrates the Chinese foreign exchange (FX) market for the South African
rand (ZAR):
1
Assignment 02
Semester 2 2025
Due 2025
, Exchange Rate Dynamics, Transaction Risk Management, and
Macroeconomic Policy Responses in South Africa
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.
Diagram
Exchange Rate (CNY/ZAR)
Higher tariff reduces Simports
ZAR
⇒ Demand for ZAR falls
E0
P0
P1
E1
D0
D1 Quantity of Rand (ZAR)
Q1 Q0
Explanation
1. Market Set-up
The diagram illustrates the Chinese foreign exchange (FX) market for the South African
rand (ZAR):
1
