, ECS3703 Assignment 2 (COMPLETE ANSWERS)
Semester 2 2025 – DUE September 2025; 100% correct
solutions and explanations.
Question 1
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.
When two countries trade, foreign exchange (forex) markets are directly
influenced by the demand and supply of each other’s currencies.
South African exports to China mean Chinese buyers must
purchase South African goods.
To do so, they need to exchange their Chinese yuan (CNY) for
South African rand (ZAR).
This increases the demand for rand in the foreign exchange
market, while the supply of yuan increases.
Now, if the Chinese government imposes higher tariffs on South
African exports, several things will happen:
1. South African exports to China become more expensive.
o Chinese consumers and businesses will buy fewer South
African goods (such as minerals, agricultural products, and
wine).
2. Fall in demand for South African exports.
o Because fewer exports are sold, China’s demand for rand
decreases.
o As a result, the supply of yuan in the forex market falls
(since Chinese importers don’t need to sell as much yuan to
buy rand).
Semester 2 2025 – DUE September 2025; 100% correct
solutions and explanations.
Question 1
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.
When two countries trade, foreign exchange (forex) markets are directly
influenced by the demand and supply of each other’s currencies.
South African exports to China mean Chinese buyers must
purchase South African goods.
To do so, they need to exchange their Chinese yuan (CNY) for
South African rand (ZAR).
This increases the demand for rand in the foreign exchange
market, while the supply of yuan increases.
Now, if the Chinese government imposes higher tariffs on South
African exports, several things will happen:
1. South African exports to China become more expensive.
o Chinese consumers and businesses will buy fewer South
African goods (such as minerals, agricultural products, and
wine).
2. Fall in demand for South African exports.
o Because fewer exports are sold, China’s demand for rand
decreases.
o As a result, the supply of yuan in the forex market falls
(since Chinese importers don’t need to sell as much yuan to
buy rand).
