Economic activity in the United States increased at a stable speed over the first half of 2018. In this economic environment, economists worry that there might be large capital outflow from emerging markets in Asia to the United States.

a. The exchange rate of USD to Malaysian Ringgit decreased from 0.2579 USD/Ringgit on 28 January 2018 to 0.2459 USD/Ringgit on 1 August 2018. With the help of a demand-supply diagram, briefly explain how did the capital outflow from Malaysia to the United States lead to the depreciation of Malaysian Ringgit against USD? Please indicate the above exchange rates in your diagram.

b. Suppose that US investors sell a large amount of Ringgit denominated bonds and use the proceeds to buy US dollar. How will this event affect the price of Ringgit denominated bonds and hence interest rate in Malaysia? Illustrate your answer with a demand-supply diagram.