Free Floating Exchange Rate

Question 1

how is the value of a FFER determined

Answer 1

by the market forces of d/s, value changes daily as it reflects changes in d/s.

Question 2

3 types of FFER: what is a clean float

Answer 2

RBA has no influence on currency

Question 3

3 types of FFER: what is a managed float

Answer 3

intervention of RBA from time to time to stop the currency from going to high or too low by entering the market as a buyer of seller

Question 4

3 types of FFER: what is a dirty float

Answer 4

RBA intervenes in foreign ER to influence movement of currency or set it’s value in a range

Question 5

what are the 2 ways RBA interferes in ER

Answer 5

1. acts as buyer/seller which indirectly influences

2. Use of monetary policy to set short term interest rate

Question 6

managed: what does the RBA do if it wants depreciation to stop

Answer 6

enter market as buyer (using reserve foreign currencies), demand AUD and decrease supply

Question 7

managed: what does the RBA do if it wants appreciation to stop

Answer 7

sells AUD, increasing supply and reducing upward pressure on ER

Question 8

policy: how does RBA appreciate AUD

Answer 8

increase interest rates so foreign investment increases into Aus

Question 9

policy: how does RBA depreciate AUD

Answer 9

lower interest rates so foreign investment falls, decreasing AUD