Answer to Question #287449 in Macroeconomics for Sihle

Question

With aid of graph what impact of more South Africans spend their holidays in the United States world be on Rands or Dollars exchange rate centers Paribas

Answer 1

Vertical axis represents rands per dollars.

$D_0$When more South African tourists visit American, exchange rates market for US dollars will react to higher interest rates. A higher rate of return will make holding dollars more attractive. Demand for dollars in South Africa will shift from to $D_1$ while supply for dollars will shift to the left from $S_0$ to $S_1$ . The new equilibrium $(E_1)$ has a stronger exchange rate than the original equilibrium$(E_0)$ . The equilibrium quantity traded does not change in this case.