The balance of payments and the exchange rate Flashcards
Australia’s current account deficit has narrowed from about 3% of GDP at the end of 2010 to 1.0% in Q1 2017.
What does this indicate? (1 marks)
o Australia as a whole is saving less than is investing in new capital expenditure
yes or no
YES?
Australia’s current account deficit has narrowed from about 3% of GDP at the end of 2010 to 1.0% in Q1 2017.
What does this indicate? (1 marks)
o The rest of the world is withdrawing capital/funds from Australia? YES / NO
No
Australia’s current account deficit has narrowed from about 3% of GDP at the end of 2010 to 1.0% in Q1 2017.
What does this indicate? (1 marks)
o The Australian Government fiscal/budget is necessarily in deficit? YES / NO
No?
Australia’s current account deficit has narrowed from about 3% of GDP at the end of 2010 to 1.0% in Q1 2017.
What does this indicate? (1 marks)
o Australia’s net worth will necessarily decrease? YES / NO
YES (unless assets are going up)
Australia’s current account deficit has narrowed from about 3% of GDP at the end of 2010 to 1.0% in Q1 2017.
What does this indicate? (1 marks)
o The $A nominal exchange rate in trade weighted terms will necessarily depreciate?
YES?
Australia has a floating exchange rate regime and for some reason experiences an unanticipated/ unexpected (net) outflow of capital by foreign portfolio investors. What is the likely impact on 1) the current account deficit; 2) the value of the $A nominal exchange rate (against the USD); and 3) Australian bond yields (3 marks). Explain why. (2 marks
1/ narrow
2/worth less
3/Up
Why? 1/ less imports 2/ less demand 3/?
What are the main drivers of the Australian dollar exchange rate over:
o the short to medium term? (3 marks)
o the longer term? (2 marks
Short: Policy rate, iron ore and other natural resources price, capital account balance, noise.
Long: PPP -other countries CCy and economic performance
