Australian Economics Assignment Help

Australian Economics Assignment Help

Australian Economics Assignment Help

Introduction

This program has been executed over the different aspects related to the currency of Australia and changes in the Australian Dollar which are expected in the coming years. This report discusses the major issues which are discussed in the article, the manner in which AUD is determined in the forex market with the help of the demand and supply model of exchange rate determination, factors influencing fluctuations. It also discusses the analysis of the movement of AUD in relation with the US dollar and actions which can be used for maintaining the higher exchange rates.

Australian Economics Assignment Help

(a) Briefly summarise the main issues discussed in this article?

There are various issues which are discussed in this article and these articles are discussed or mentioned below:

1. The most important issue which have been discussed in this article is the impact over the competitiveness of the country at global level due to the loss of the 7% on a trade weighted basis.

2. Another issue considered in this article include increase in the prices of imports and fall in the exports of the country due to the weaker currency of the country in comparison with the trading partners.

3. Another issue mentioned in this article include the fall in the investment related to the mining due to the fall in the currency of a country in comparison with the trading partners.

4. The prices of the commodity also fall as the decline in the exports of the country will affect the prices of the commodity in the economy of the country and the prices of the goods and services falls.

5. Decline in the terms of trade of the country will create an impact over currency of Australia. This is an important issue which will create an impact over the currency of the Australia (Rana & Balli, 2016).

(b) Using Demand and Supply model of exchange rate determination briefly explain how AUD is determined in the forex market, and what factors influence its fluctuations.

The supply and demand are related concepts which depend upon each other. Supply and demand forms a base for the purpose of the determination of the price of products or services and the exchange rates. According to the Demand and supply model of exchange rate increase in the supply results in decrease in the prices and increase in the demand results in increase in the prices. The supply and demand of the commodity must match with each other so as to eliminate the condition of excess demand or excess supply in the market. When the demand of the commodity increases then the value of the commodity is increased and when the supply of the commodity increases then the value of the commodity is decreased or depreciated. The interaction of demand and supply helps in the determination of the value of the currency of a country (Haque, et. al., 2015).

Foreign exchange market can be understood as a decentralised market at global level for the purpose of trading of the currencies. There are number of countries in foreign exchange market due to which no single country is having control over the market. Variety of forces affects the forex market and these forces include money portfolio manager, commercial banks, money broker, few private traders and large corporations. The market forces play a vital role in the determination of the AUD. These market forces affect the demand and supply of the currency in the market and which affects the value of the currency of Australia. The Reserve Bank of Australia affects the currency of Australia for the purpose of management of the economy of the country for dealing with the changing conditions of the market. For the purpose of creation or attainment of the balance between the economy and maintain the economy of the country in an effective manner (Atems, et. al., 2015).

AUD in relation with the US$

Graph showing the market determining the exchange rates or AUD in relation with the US$

There are different factors which results in fluctuations in the currency of Australia and these factors include differentials in the inflation, deficit of the current account, differences in the interest rates, public debt, the terms of the trade, recession, speculation and political stability and the economic performance which affects the investment in the country. These factors affect the currency and leads to fluctuations in the currency of Australia (Atems, et. al., 2015).

(c) Using exchange rate data from Reserve Bank of Australia and graphs (monthly data of last three years) analyse the movement of AUD relative to that of the US dollar? Is it in line with the world commodity price movement during this period? Are there any other factors contributing to this behaviour of the Australian dollar?

Exchange rates plays a vital role for every economy as it creates impact over the value of the currency of an economy and it can be explained as a transaction at global level which facilitates the conversion of one currency into the currency of another country. Various parties are involved in the exchange of the currencies of the different countries. This exchange takes place for the purpose of the conducting the trading activities between the different countries and a fair means for the trade and exchange of the goods and services between the different countries.

From the analysis of the data provided by the Reserve Bank of Australia for the year 2014 it has been analysed that the value AUD in relation with the USD has increased which has increased the value of the AUD in the market which enhances the economy of Australia. This increase in the value of AUD will result in the fall in the prices of the commodity. This rise in the value of the AUD results in positive as well as negative impact over the economy of Australia. This rise leads to increase in the exports of the goods and services and provides a competitive advantage of the economy of Australia. It will also result in the fall in the prices or value of the imported products or services in Australia and fall in the value of the overseas travel and foreign investment which provides benefit to the consumers of the products or services (Maatoug, et. al., 2011).

products or services

AUD in relation with the USD

From the analysis of the below attached table and graph which is showing the value of AUD in relation with the USD, it has been evaluated that the value of the AUD has increased in relation with the USD in comparison with the data provided by Reserve Bank of Australia in 2014. This increase in the value of AUD enhances the value of the currency of Australia which increases the value of the currency of Australia in the economy of the world. This is an important element which has resulted into better value at the time of exchange of the currency. The value of the AUD in comparison with USD in December 2015 was 0.72 which has provided an advantage to the economy of Australia by improving the quantity of the products or services exported and reduction in the quantity of the products or services imported by Australia from the other countries (REITZ, et. al., 2011).

exported and reduction

AUD in comparison with the USD

From the analysis of the data provided by the Reserve Bank of Australia for the year 2016 is has been evaluated that the value of the AUD in comparison with the USD has decreased as compared to the data provided by Reserve Bank of Australia for 2015. But still the value of AUD is higher than the value of USD as in September 2016 the value of the 1 AUD is equal to the 0.76 USD. This shows that there is a rise in the value of USD. The current value of AUD is still higher than the value of USD which increases the competitiveness of the economy of Australia (Andersen & Kim, 2011).

economy of Australia

AUD in comparison with the USD

The prices of the world commodities will increase as the value of the other currencies is falling which results into the situation where the exports are cheaper in comparison to the imports of the country which are expensive. The major factors which have affected the economy of Australia include the mining economy which has affected the investment done by the resource sector of Australia, exchange rates from AUD to Gross Domestic Product, the recent budgets and business confidence and the investors (Andersen & Kim, 2011).

(d) Do you think that the AUD will fall as low as US 65C by the end of 2016? Justify your answer. What advantages do you think Australia will have in such a scenario?

No, the value of AUD will not fall as low as US 65C by the end of 2016 as from the analysis of the information provided by the Reserve Bank of Australia which helps in the evaluation that the value of USD has increased till September 2016 in relation with the currency of Australia. The trends of the past years have helped in the analysis that the value of AUD is increasing which has provided a competitive advantage as well as enhancement in the economic condition of the economy of Australia. This has resulted into increase in the US currency and enhancement in the economy of US. When the AUD will not fall then in this situation the economy of Australia will be in a better condition, the prices of the imports will fall and the prices of the exports of Australian economy will increase. This rise in the value of the currency of Australia will result in increase or rise in the pay. Stronger or a higher value of AUD will help the economy of Australia to import large number of units of products and services and this also results  in reduction in the inflationary pressure over the economy due to the fall in the prices of the imports which increases the purchasing power of the buyers or of the economy. It also results in low interest rate (Doughan, 2016).

(e) If the market rate is US 65C then what action could the Reserve Bank of Australia take in order to maintain the exchange rate at US 70C, and what side effects might this action have on the Australian economy? Do you think that such actions would be effective?

The actions which can be taken for the purpose of maintaining the exchange rate at US 70C include reduction in the monetary policy interest rates, increase in the money supply in the economy which will create a situation of inflation and the value US 65C will shift to US 70C. The other reasons include fall in the demand of the currency in the market will also results in the fall in the value of AUD. This change in the value of AUD will create huge impact over the b economy of Australia. The impacts of this change in the value over the economy of Australia include the increases in the prices of the imports made by the country and decrease in the prices of exports which affect the economy at large and create an adverse impact over the Gross Domestic Product of the economy. The condition of inflation will arise and the prices of the products and services will become expensive and affects the level of income of the individual. It also results in reduction in the purchasing power of the buyers as well as of the economy. The depletion in the purchasing power affects the living standard of the people at large as the decrease in the purchasing power will decrease the consumption of the individual in an economy. These actions will be effective but will create adverse impact over the economy of Australia (Haque, et. al., 2015).

Conclusion

This program covers different facts related to the currency of Australia which are discussed in an article. This program has discussed the main issues which are mentioned in the article, the use of demand and supply model in determining the value of AUD in the foreign exchange market, the impact of the change or fluctuations in the currency and its impact over the prices of the commodity, advantages of the change in AUD, impact of change in AUD over the economy of Australia and effectiveness of these fluctuations in the currency of the AUD.

References

Andersen, P. & Kim, S. 2011, "Intraday timing of AUD intervention by the Reserve Bank of Australia: Evidence from microstructural analyses", Journal of International Financial Markets, Institutions & Money, vol. 21, no. 2, pp. 277-295.

Atems, B., Kapper, D. & Lam, E. 2015, "Do exchange rates respond asymmetrically to shocks in the crude oil market?", Energy Economics, vol. 49, pp. 227-238.

Doughan, J. 2016, "Forging Connections: An AuD student values her NSSLHA membership for the links it helps her create with students, professionals and her own future", ASHA Leader, vol. 21, no. 7, pp. 42.

Haque, M.A., Topal, E. & Lilford, E. 2015, "Relationship between the gold price and the Australian dollar - US dollar exchange rate", Mineral Economics, vol. 28, no. 1, pp. 65-78.

Haque, M.A., Topal, E. & Lilford, E. 2015, "Relationship between the gold price and the Australian dollar - US dollar exchange rate", Mineral Economics, vol. 28, no. 1, pp. 65-78.

Maatoug, A.B., Fatnassi, I. & Omri, A. 2011, "Sterilised Interventions within a Heterogeneous Expectation Exchange Rate Model: Evidence from the Reserve Bank of Australia", Australian Economic Review, vol. 44, no. 3, pp. 258-268.

Rana, F. & Balli, F. 2016, "WOULD AUSTRALIA–NEW ZEALAND BE A VIABLE CURRENCY UNION? EVIDENCE FROM INTERSTATE RISK?SHARING PERFORMANCES", Contemporary Economic Policy, vol. 34, no. 3, pp. 531-552.

REITZ, S., RÜLKE, J.C. & TAYLOR, M.P. 2011, "On the Nonlinear Influence of Reserve Bank of Australia Interventions on Exchange Rates", Economic Record, vol. 87, no. 278, pp. 465-479.