(A) Identify THREE factors that might shift the demand curve for foreign exchang

Question

(A) Identify THREE factors that might shift the demand curve for foreign exchange to the right.

TO ANSWER QUESTION

CHOOSE ONLY THREE ANSWERS FROM THE LIST BELOW

Select one or more:

(i) increase exports

(i) decrease exports

(i) increase imports

(i) decrease imports

(ii) increase local interest rates relative to foreign interest rates

(ii) decrease local interest rates relative to foreign interest rates

(iii) remittance inflows

(iii) remittance outflows

(B) What is the net effect on the balance of trade from each of the THREE factors identified in part 5a (i)?

TO ANSWER QUESTION

CHOOSE ONLY THREE ANSWERS FROM THE LIST BELOW

Select one or more:

(i) reduce net exports (trade deficit)

(i) increase net exports (trade surplus)

(ii) increase/cause current account deficit

(ii) reduce/eliminate current account deficit

(iii) increase capital inflows

(iii) reduce capital inflows

(iii) increase capital outflows

(iii) reduce capital outflows

(iii) net impact on capital flows uncertain

(C) Which ONE of the three factors selected in 5a (i) might cause a simultaneous shift of the supply curve for foreign exchange to the left? Explain.

Explanation / Answer

(A) increase imports (demand for foreign currency will increase)

decrease local interest rates relative to foreign exchange rates (induce investment in foreign currency)

remittance outflows (higher demand for foreign currency)

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