5a. Identify three factors that might shift the demand curve for foreign exchang

ID: 1119462 • Letter: 5

Question

5a. Identify three factors that might shift the demand curve for foreign exchange to the right.

Increase exports

Decrease exports

Increase imports

Decrease exports

Increase local interest rates relative to foreign interest rates

Decrease local interest rates relative to foreign interest rates

Remittance inflows

Remittance outflows

5b. What is the net effect on the balance of trade from each of the three factors identified in part 5a (i)

Reduce net exports (trade deficit)

Increase net earnings (trade surplus)

Increase/cause current account deficit

Reduce/eliminate current account deficit

Increase capital inflows

Reduce capital inflows

Increase capital outflows

Decrease capital outflows

Net impact on capital flows uncertain

5c. Which one of the factors selected in sa(I) might cause a simultaneous shift of the supply curve for foreign exchange to the left? Explain.

5a Increased imports, Decrease local interest rates relative to foreign interest rates, remmitances outflow.

5b Reduce net exports (trade deficit), Increase/cause current account deficit, Increase capital outflows

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