Answer to Question #91887 in Macroeconomics for Mufamadi Ndweleni

Question

Draw a demand and supply curve for British pounds (on the vertical axis plot rand per British pound). [10 marks]. What factors are likely to cause an increase in the demand for British pounds (in exchange for South African rands)? [5]. How can this be illustrated in the diagram you have drawn? [3] Does this represent an appreciation or depreciation of the South African rand relative to the British pound? [2] {20}

Answer 1

The figure below shows the demand and supply curves for pound (in terms of the South African rand) in the foreign exchange market

i) an increase in UK and other countries where pound are the currency tourists to South African game reserves would cause the supply curve to shift to the right

ii) As a result of more UK and other countries where pound are the currency visiting South Africa, we can expect, ceteris paribus an appreciation of the rand relative to the pound

iii) Other factors affecting the currency values are: tourist visiting, exchange rates, tarrif etc.