The figure to the right shows the market for South Africa\'s currency, the rand.

Question

The figure to the right shows the market for South Africa's currency, the rand. Suppose a rise in U.S. inflation causes many U.S. residents to seek to buy gold, which is a major South African export good, as a hedge against inflation. Moreover, assume a floating exchange rate. Using the line drawing tool show how the market for the rand is impacted by this event. Properly label this line. Carefully follow the instructions above, and only draw the required objects. According to your graph, the rand has with respect to the dollar.

Explanation / Answer

It would increase the demand for the rand, moving the demand curve for the rand to the right. Thus the rand would appreciate and increase with respect to the dollar.

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