Aus Dollar

Question 1

Who supplies AUD

Answer 1

Financial flows out of the country (converting to other currency)
Speculators
Domestic demand for imports

Question 2

Who demands AUD

Answer 2

Financial flows in to the country (converting to aud)
Speculators, expectations
Demand for australian exports as foreigners need our currency

Question 3

How can AUD appreciate

Answer 3

-Increase in Aus interest rate or decrease in foreign interest rate
- Improved investment opportunity in Aus or deterioration in foreign investment opportunity
- Rise in commodity price and improvement in terms of trade
-Improvement in Aus international competitiveness
-Low inflation in Australia
-Increased demand for Aus exported goods and services
- Expectations based on above factors

Question 4

How can AUD depreciate

Answer 4

-Decrease in Aus interest rate or increase in foreign interest rate
- deteriorated investment opportunity in Aus or improvement in foreign investment opportunity
- Fall in commodity price and deterioration in terms of trade
- Higher inflation in Australia
- increased demand for imported goods and services
- expectations of depreciation based on above factors.

Question 5

What is the Trade Weighted Index (TWI)

Answer 5

Measure of the Australian dollar against a basket of foreign currencies of major trading partners, weighted according to significance to Australia.

Question 6

Negative effects of depreciating AUD

Answer 6

reduced consumer purchasing power
increases interest servicing cost on borrowing debt
more expensive to purchase foreign assets
higher inflation as imports are more expensive

Question 7

Positive effects of depreciating AUD

Answer 7

higher demand for exports as they are cheaper
domestic substitutes for imports will rise as they become more competitive
increases foreign income from australia’s investment abroad
foreign investors find it less expensive to invest in Australia

Question 8

Negative effects of appreciating AUD

Answer 8

exports become more expensive
imports cheaper, domestic production falls
less investment in Australia

Question 9

Positive effects of appreciating AUD

Answer 9

consumers have increased purchasing power
decreases debt servicing cost on foreign debt (reduced CAD)
cheaper to buy foreign assets
reduced inflation as imports become cheaper