Which of the following factors is most likely to have caused the change shown in the diagram below? The Market for Malaysian Ringgit

Question

BlackTom AI · Accepted Answer

Increased US demand for holidays in Malaysia raises US travelers’ demand for Malaysian ringgit because tourists must convert US dollars into ringgit to pay for goods and services there. That higher foreign demand for RM shifts the demand curve for RM to the right, exactly as shown.

1) Relevant knowledge points and concepts
- Foreign exchange market: the price (vertical axis) is exchange rate in US$ per RM. A rightward shift in the demand curve for RM means more US$ buyers want RM at each price.  
- Law of supply and demand: excess demand at the original rate pushes the exchange rate up until a new equilibrium is reached with a larger quantity of RM traded.  
- How macro factors affect currency: tourism demand directly increases foreign demand for the local currency; inflation and interest-rate differentials and domestic income growth affect capital and trade flows differently.

2) Step-by-step reasoning
- If US demand for holidays in Malaysia increases, more US residents convert US$ into RM.  
- At the initial exchange rate (e0), this creates excess demand for RM.  
- The exchange rate (US$ per RM) rises (e1 > e0) until supply and demand equalize.  
- The new equilibrium has a higher exchange rate (RM is worth more US$) and a larger quantity of RM exchanged. This matches the diagram’s rightward demand shift and higher price.

3) Intermediate steps (no numeric values provided)
- DemandRM: D0 → D1 (right shift).  
- Excess demand at e0 → upward pressure on e → new equilibrium e1 > e0 and Q1 > Q0.

4) Why the correct answer is correct
- Option b describes exactly the mechanism: increased foreign (US) demand for Malaysian goods/services (tourism) increases demand for RM, shifting the demand curve right and causing appreciation and higher traded quantity.

5) Why other options are incorrect
- a) Lower US inflation relative to Malaysia typically makes US goods relatively cheaper, reducing foreign demand for Malaysian exports and weakening RM (not a rightward demand shift).  
- c) If Malaysian rates fall while US rates rise, capital flows out of Malaysia, reducing demand for RM (or increasing supply), causing depreciation—opposite direction.  
- d) Faster Malaysian income growth raises Malaysian demand for imports (increasing supply of RM on FX markets), shifting supply right, which would depreciate RM, not produce the pictured rightward demand shift.

6) Conclusion
This reasoning confirms option b. The correct answer is: b. US demand for holidays in Malaysia increases.

Which of the following factors is most likely to have caused the change shown in the diagram below? The Market for Malaysian Ringgit单项选择题

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