ECS3703 Assignment 2
(COMPLETE ANSWERS)
Semester 2 2025 - DUE
September 2025
[Document subtitle]
[School]
[Course title]
, ECS3703 Assignment 2 (COMPLETE ANSWERS) Semester 2 2025 - DUE September 2025
Course
International Finance (ECS3703)
Institution
University Of South Africa (Unisa)
ECS3703 Assignment 2 (COMPLETE ANSWERS) Semester 2 2025 - DUE September 2025; 100%
TRUSTED Complete, trusted solutions and explanations.
. Suppose a nation with an open economy and fixed exchange rates is in equilibrium at its
natural level of output. Explain, with the aid of a graph the effects of expansionary fiscal policy.
(18) 2. Explain the difference between dollarization and an optimum currency area. (10) 3. “The
combination of fiscal policy to achieve internal balance and monetary policy to achieve external
balance with a fixed exchange rate faces several criticisms”. Evaluate this statement briefly. (10)
4. Discuss the portfolio balance approach to the balance of payments, and how it differs from
the monetary approach (12) With the aid of a diagram, illustrate and briefly explain the process
of correcting a deficit in a nation’s balance of payments by depreciation or devaluation……….[20]
2. 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. With the aid of a diagram,
explain the tendency of a nation’s trade balance to first deteriorate before improving because of
a devaluation or depreciation in the nation’s currency………….
…………………………………………………………..[10] 3. With the aid of graphs, explain the difference
between a stable and an unstable foreign exchange
market…………………………………………………………….[10] 4. Assuming you are a Chief Financial Officer
in a large manufacturing company operating in South Africa. The company realises that billions
of rands in profit get eroded when selling products to foreign countries due to transaction risks.
Explain the risk avoidance method and the tools that you would consider as part of your risk
management strategy. Briefly explain dollarization and its costs and benefits…………………………….
[10] Assume that South Africa is involved in trade with the United States of America (USA). With
the aid of a diagram explain what would happen to South Africa’s foreign exchange market
equilibrium (demand for SA’s currency), if the following occurs: (a) There is an increase in U.S.
preference for South African-produced products. (15) (b) There is a decline in U.S. preference
for South African-produced products (you can add the new AD curve on the same graph used in
(a) and refer to it). (10) Assume Nation A operates under a fixed exchange rate system and is in a
recession. (a) Explain, with the aid of a diagram how Nation A can use expansionary fiscal policy
under fixed exchange to eliminate the recession. (25) (b) (a) Explain the advantages and
(COMPLETE ANSWERS)
Semester 2 2025 - DUE
September 2025
[Document subtitle]
[School]
[Course title]
, ECS3703 Assignment 2 (COMPLETE ANSWERS) Semester 2 2025 - DUE September 2025
Course
International Finance (ECS3703)
Institution
University Of South Africa (Unisa)
ECS3703 Assignment 2 (COMPLETE ANSWERS) Semester 2 2025 - DUE September 2025; 100%
TRUSTED Complete, trusted solutions and explanations.
. Suppose a nation with an open economy and fixed exchange rates is in equilibrium at its
natural level of output. Explain, with the aid of a graph the effects of expansionary fiscal policy.
(18) 2. Explain the difference between dollarization and an optimum currency area. (10) 3. “The
combination of fiscal policy to achieve internal balance and monetary policy to achieve external
balance with a fixed exchange rate faces several criticisms”. Evaluate this statement briefly. (10)
4. Discuss the portfolio balance approach to the balance of payments, and how it differs from
the monetary approach (12) With the aid of a diagram, illustrate and briefly explain the process
of correcting a deficit in a nation’s balance of payments by depreciation or devaluation……….[20]
2. 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. With the aid of a diagram,
explain the tendency of a nation’s trade balance to first deteriorate before improving because of
a devaluation or depreciation in the nation’s currency………….
…………………………………………………………..[10] 3. With the aid of graphs, explain the difference
between a stable and an unstable foreign exchange
market…………………………………………………………….[10] 4. Assuming you are a Chief Financial Officer
in a large manufacturing company operating in South Africa. The company realises that billions
of rands in profit get eroded when selling products to foreign countries due to transaction risks.
Explain the risk avoidance method and the tools that you would consider as part of your risk
management strategy. Briefly explain dollarization and its costs and benefits…………………………….
[10] Assume that South Africa is involved in trade with the United States of America (USA). With
the aid of a diagram explain what would happen to South Africa’s foreign exchange market
equilibrium (demand for SA’s currency), if the following occurs: (a) There is an increase in U.S.
preference for South African-produced products. (15) (b) There is a decline in U.S. preference
for South African-produced products (you can add the new AD curve on the same graph used in
(a) and refer to it). (10) Assume Nation A operates under a fixed exchange rate system and is in a
recession. (a) Explain, with the aid of a diagram how Nation A can use expansionary fiscal policy
under fixed exchange to eliminate the recession. (25) (b) (a) Explain the advantages and
