Foreign Exchange Market and AUD

Foreigners demand AUD for purchasing Australian exports, investing in Australian businesses, saving in Australian banks, and speculative buying.

The RBA allows the AUD to find its own exchange rate to let market forces of supply and demand determine currency value without intervention.

The equilibrium exchange rate is where the quantity supplied equals the quantity demanded of foreign currency, determined by the interplay of market forces.

<p>Australians supply AUD when importing from abroad or when investing in foreign countries.</p> Signup and view all the answers

<p>Currency depreciation means that the external value of the AUD has fallen, making it worth less in foreign markets.</p> Signup and view all the answers

<p>An exchange rate is the price of one currency in terms of another, representing its purchasing power against that currency.</p> Signup and view all the answers

<p>Foreign currency reserves help meet balance payments, influence the foreign exchange rate, and maintain market confidence.</p> Signup and view all the answers

<p>Over $7.5 trillion worth of US dollars is traded daily in the global currency markets.</p> Signup and view all the answers

<p>In a floating exchange rate system, currency value is determined solely by market forces of demand and supply.</p> Signup and view all the answers

<p>The US dollar had the highest total daily turnover, with $6,639 billion traded.</p> Signup and view all the answers

<p>Key reasons include international trade and foreign direct investments.</p> Signup and view all the answers

<p>The Chinese Yuan had the lowest trading volume, with $526 billion traded.</p> Signup and view all the answers

<p>Foreign currency reserves typically include major currencies like the US dollar, Euro, Japanese yen, and British pound.</p> Signup and view all the answers

<p>The supply of AUD is upward sloping because as the dollar price of pounds rises, Australian goods become cheaper, leading to an increase in the quantity of pounds supplied to buy AUD.</p> Signup and view all the answers

<p>The demand for AUD is downward sloping because as AUD becomes cheaper, American consumers are more willing to purchase Australian goods.</p> Signup and view all the answers

<p>An increase in demand for AUD shifts the demand curve to the right, resulting in a higher equilibrium exchange rate.</p> Signup and view all the answers

<p>When Americans invest more in Australia, the demand curve for AUD shifts to the right due to increased demand for Australian currency.</p> Signup and view all the answers

<p>A decrease in the supply of AUD would lead to an increase in its exchange rate, as fewer AUD would be available in the market.</p> Signup and view all the answers

<p>The demand for foreign currency, like AUD, is derived from the desire to purchase foreign goods, services, and investments.</p> Signup and view all the answers

<p>An increase in the exchange rate to USD 0.75 implies that there is higher demand for AUD, which reflects an increased interest in Australian goods.</p> Signup and view all the answers

<p>An increase in supply of AUD results in a downward pressure on the exchange rate, as more AUD becomes available in the market.</p> Signup and view all the answers

<p>It refers to an increase in the exchange rate of the AUD relative to the USD, making the AUD more expensive.</p> Signup and view all the answers

<p>It makes Australian exports more expensive and less price competitive in foreign markets.</p> Signup and view all the answers

<p>It makes imports cheaper and more attractive to Australian consumers.</p> Signup and view all the answers

<p>It indicates that foreigners are less interested in purchasing Australian commodities, leading to a leftward shift in the demand curve for AUD.</p> Signup and view all the answers

<p>The exchange rate drops, meaning the AUD costs less in terms of USD.</p> Signup and view all the answers

<p>They may want to purchase fewer Australian commodities or invest less in Australia, leading to decreased demand for AUD.</p> Signup and view all the answers

<p>Australians gain increased purchasing power for imported goods after AUD appreciation.</p> Signup and view all the answers

<p>Currency depreciation occurs when the value of the AUD decreases relative to foreign currencies, such as the USD.</p> Signup and view all the answers

<p>A depreciating AUD generally leads to higher import prices, which can increase consumer prices and potentially reduce deflation.</p> Signup and view all the answers

<p>A weaker AUD stimulates economic growth by boosting net exports due to increased price competitiveness of exports.</p> Signup and view all the answers

<p>Currency depreciation can lead to decreased unemployment as increased demand for exports stimulates domestic production and job creation.</p> Signup and view all the answers

<p>Depreciation increases export revenues while reducing import spending, leading to a better trade balance.</p> Signup and view all the answers

<p>Wider effects of currency depreciation include improvements in business profitability and increased capital investment in the economy.</p> Signup and view all the answers

<p>Currency appreciation generally leads to increased import costs and makes exports more expensive for foreign buyers.</p> Signup and view all the answers

<p>A fixed exchange rate system provides price stability by tying a currency's value to another, reducing uncertainty in international transactions.</p> Signup and view all the answers

<p>Revaluation increases the currency's value relative to another currency, mimicking the effects of currency appreciation in a floating system.</p> Signup and view all the answers

<p>Inflation rates and interest rates are two significant factors affecting a floating exchange rate.</p> Signup and view all the answers

<p>Currency depreciation typically makes exports cheaper and imports more expensive, potentially improving the trade balance.</p> Signup and view all the answers

<p>Expectations of future exchange rates can influence investor behavior, potentially leading to currency appreciation or depreciation based on projected economic conditions.</p> Signup and view all the answers

<p>The government authority is responsible for changing the exchange rate in a fixed exchange rate system.</p> Signup and view all the answers

<p>Currency appreciation can lead to lower import prices, which may reduce overall inflation in the economy.</p> Signup and view all the answers