Question 5A - Part 1 Identify THREE factors that might shift the demand curve fo

Question

Question 5A - Part 1

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

Question 5A - Part 2

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

Question 5A - Part 3

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

5A1) demand for foreign exchange increases when we increase imports, decrease in local interest rate relative to foreign interest rate and remittances outflow all leads to increase in foreign demand

5A2)increase import worsens BOT

Decrease in foreign interest rate doesnot effect BOT directly

Remittances also doesnot affect BoT directly, howvere BOT worsen indirectly.

3) supply curve shift left when net export increases,increased capital inflow and reduce capital outflow.

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