Introduction

Question 1

define exchange rates and what is the current ER

Answer 1

the price of one country’s currency in terms of another currency (AUD1 = US0.77

Question 2

what is the trade weighted index

Answer 2

a ‘basket’ of currencies weighted according to their importance in trade flows with Australia

Question 3

what is the foreign exchange market

Answer 3

market in which currencies are bought and sold internationally

Question 4

what is foreign exchange

Answer 4

the currency of another country that is needed to carry out international transactions allowing consumers/producers to trade globally in dif currencies

Question 5

what changes to the d/s model change when:

1. a country exchanges their currency for ours
2. we swap our currency for another

Answer 5

1. demand for AUD shifts right

2. supply of AUD shifts right

Question 6

what causes:

1. appreciation
2. depreciation

Answer 6

1. D(AUD) increases AND/OR S(AUD) decreases

2. D(AUD) decreases AND/OR S(AUD) increases

Question 7

what are the 2 ways the ‘price’ of a currency is determined

Answer 7

1. floating - market forces of d/s freely set value

2. fixed - artificially setting of the price at fixed rate