Decrease in demand for yuan due to reduced foreign investment

Steps:

• Identify the shift: D1 to D2 shows a leftward decrease in demand for yuan, lowering its price in USD.
• Recall demand determinants: Demand for yuan rises with foreign purchases of Chinese goods/services or investments requiring yuan.
• Evaluate options: Seek factor reducing foreigners' need for yuan.
• Select A: Decreased FDI means less yuan bought by investors for Chinese projects.

Why A is correct:

• Foreign direct investment requires buying yuan to fund operations in China; a decrease reduces demand per the balance of payments definition.

Why the others are wrong:

• B: Higher Chinese tariffs on imports reduce yuan supply in forex (fewer imports mean less yuan sold for USD), not demand.
• C: Central banks buying yuan directly increases demand.
• D: Higher Chinese interest rates attract capital inflows, boosting yuan demand.

Final answer: A