exohangerate.

TL
6 F
chapter

rate
exchange
i ) Definition 1- floating exchange rate SYS
\ Index LTWI )
Trade weighted
⑤
ii ) Factors that affect exchange rate

positive
iii )
Effects I
negative
brief 1 App )

iv ) R'ship Bop & exchange rate

v7 Trend
v43 concept

Exchange rate
.
price ofone currency in terms of another .

international trade ; finance Investment

purpose
.
•
:

Fort market C Foreign

exchange market)

• Currencies are
bought and sold
and
•

purpose :D import export

③ interbank settlement
③ foreign investment
④ tourism
,
education . -

btw systems -

floating exchange rate as Alms

systemsmanaged
1

Fixed exchange rate

exchange rate systems

Floating exchange rate systems

• "
mange rate dex.rminedai.at, ↳ ma .µ .
.ig¥¥c no
•
market rate depend on the demand and supply of that currency
in the forex market
•
without government intervention

6.37hr Exchange rate :

bilateral rate

eg against
. USD ,
RMB ,
Ringgit

( Twi ) Trade weighted Index :

① average of the exchange rates of a country 's

currency with the currencies

of its most important trading partners .

② comprehensive measure of purchasing power of the HUD

③ basket of 19 trading partners .

 demand ↑
Appreciation -

\
supply ↓

demand ↑ .

Supply 6

Exchange rate f. value of IAVD Mtims Exchange rate

n of USD ) revalue of 1AM ) 5'
informs of USD
S S
✗

I
-
-
-

=
-
- - -
.

as i
0.5
t;
-
-
-
-

I 1

1
I Dl 1
,

! D
/ I
Do
,

! ! 5 Quantity it s
o

of QQ AUD 2,2 Quantity

of AUD

demand ↓

Depreciation
-
\
supply ↑

demand & Supply ☆

Exchange rate Exchange rate

of LAUD terms of USD ) terms of USD )
glue cvnalue of
in in
AUD

S S

* Si
0.5
-
-
-
,
- -
-

?
° 's
: = ' '
i
-
_

i
- -
- - -

' '
'

* '
I I
! !
☐
a
, , > ¥60b gates
Artur
2,2 22 ,
 6.4hr
=
,
☆%g⊕E☒*EI⑨•%⑧o☒g$* to
÷
that contributes
currency strength

g.gyaw.mgygi.name?.g.U
i.
commodity prices and terms of trade
2. Relative interest rates
3. world economic rate
growth
4.
Speculation

1 Commodity prices and terms of trade

*
index will increase
commodity price ↑ , export p
-

leading to fav TOT

eg
.

iron ore ,
coal
-
commodities is
price inelastic
-
even if price ↑ demand still ↑
,

of ↑
-
demand comm → demand AUD
-
-
☒ revenue ↑
→
appreciate
→
attract foreign investors
_B demand for AUD ↑
→
appreciate .

2 Relative interest rates

=

IR ↑ than trading partners →

deposit fund into bus Bank
→ for ↑ interest repayments
eg .
Change MY R ← → demand for AUD
to AUD →
Appreciate

④ during pandemic lowest IR at 0-17 .

 3 World economic
growth rate .

Trading partner 's economy growth § eg China , Japan ( emerging

economy
)
→ industrialized nation
→ income of trading partners ↑
→ need iron ore to produce steel
→
spend on services : edu tourism
, → demand for iron one

→ demand of AUD ↑ → demand for AUD ↑ →

appreciate
→
appreciate .

4 Speculation
the future
speculate appreciation of AUD in

→ increase of purchase of AUD

→ This action itself increase demand for Aus dollar

→ appreciate
the world
FS :
807 .
d- currency transactions in

is related to speculation

5. Relative interest rates .

-
↓
interest rate is
relatively
→ price goods and services ↓
of
education
& services exports ( tourism )
.

→ non commodity
-

→ International comp ↑ ↳ higher elasticity demand

→
demand AUD app rec
↳ reduce import , xp increase ,

→ revenue P → attract foreign investors

→
demand AUD →
appreciate
.
 positive
& negative
6µg
P¥EEsffF•¥*¥⑤⑧ §••%$i
• 3
i .
9

↳ depreciation & appreciation

is
negative effects is
positive effects
1-
price of imports and exports -
Boas 1. of im & Xp
price BOGS -

2. foreign investment
foreign investment eguility egnility
-

2. -

3. foreign debt 3. External shock

4. Inflation 4. Australian investment abroad
-

Depreciation
1. Prices of imports & ✗ports -
Boas 1 . Prices of MP & XP -
BOAS
IN THE LONG RUN
d↓ IN THE AUD ↓
AUD
N= → ✗ PI &
=

I C ↑ iron comm ( edu ,

tour
)
port ↓ for goods
,
→ xp ↓ ✗ revenue Comm
→ ✗port revenue ↑
→-☆ Ped inelastic [ iron ore
,
coal )
→
import substitute Imp payment ↓
-

→ Ip payment ↑ lack of substitute

improve / surplus
-

Bohs .

-
So L ↓

Trade balance / Boas worsen

2. Foreign investment -

equitty
( China Jpn .
US )
2. Foreign investment
,

equility Aub ↓ -

cheaper for investors to invest

Australia 's mining sector iron ore

dividend / profit in :

Aubdlv → more return of

capital inflow into Aus will rise
-

outflow income
→ more in primary
→ Npy worsen → CAD worsen .

3. External shock -

3. Foreign debt puisdep

-
import expensive
-

find substitute
A- up d↓
→ servicing cost ↑ -
demand for domestic g&S ↑
→
interest payment ↑ → diversification
_

expansion
→ debt trap .

4. Australian Investment abroad

4. Inflation
AUD ↓
-

previous investment
import MY ↑
A- up d↓ higher Roz when converted
- into AUD

- raw imparted ↑
material → profit dividend Interest
,

Cost of production ↑ Pwa↑

-

income
→ inflow in primary
-

inflation .
- NPY
improve
.
depreciation
appreciation .
HE
 he

Cuvrintaccount
BMS ↓ GFC -107 unfavourable
/
of of
,
:

NPY ↓ gov foreign debt ↑

CAD to

10 -11 :
Boas ↑ recovery period export ↑
.

CAD ↑

hash price of mining goods

↑
-

15 -16 : BOGS -
TDT fav
<
demands for mineral ↑

Return investment
NP 4 *
on

industry ↑
-

from
mining
Cnb ↑

rise in
price of commodity -
iron one
19 -
is :
Bohs ↑ -

To / favourable

XP I ↑
-

appreciation pub -

demand for
-

Mon one

pandemic
-

Lots
,
in port ↓

NPY ↑ -

earth rate = from II. to 0.251 .

flow cash rate )

CAD →
CAS → drainage foreign musth .