The Australian Exchange Rate :: essays research papers fc

The Australian Exchange RateIntroduction What factors affect the demand and supply of Australian dollars in the foreign exchange markets? Distinguish between the possible causes and effects of currency depreciation and a currency appreciation on the Australian economy. What forces have make love into play, if any, in the past four months that have affected the value of the Australian dollar?Exchange Rate The assess at which one unit of interior(prenominal) currency is exchanged for a given amount of foreign currency A BRIEF HISTORY OF THE AUSTRALIAN DOLLARUntil 1971, the Australian dollar (AUD) was pegged to the British pound. This meant that the AUD rose or fell in line with the pound. In 1971, the AUD became pegged to the US dollar instead. These currencies were fixed currencies, which meant that the Australian currency would only change value when a major world currency also changed. This system lasted only until 1974 when the AUD became pegged to a trade-weighted selection of other currencies. This was still a fixed currency. In 1976 this selection of currencies became moveable. itsy-bitsy shifts were able to take place when needed. In 1983 the AUD became a floating currency. This means that the value of the dollar is determined by supply and demand. Initially, the Reserve Bank of Australia was non intended to intervene in the market however since then it has been deemed necessary for intervention to take place, usually to prop up the price. FACTORS AFFECTING SUPPLY AND lead OF AUSTRALIAN DOLLARSWith a floating exchange rate, such as Australias, supply and demand factors largely determine the dollars equilibrium price. The exchange rate is sensitive to changes in both demand and supply, which can cause changes in the equilibrium exchange rate. Another factor, which can affect the supply and demand of Australian dollars, is intervention in the market by the Reserve Bank of Australia. DEMANDThe demand for Australias currency in the foreign exchange mar ket (Forex) is a derived demand. It is derived from the demand for a countrys exports of goods and services and its assets. In simple terms, people who may have a demand for the Australian dollar could take _ Foreigners wanting to purchase Australian exports _ International tourists visiting Australia _ International investors wishing to purchase Australian shares or property _ International firms setting up branches or expanding in Australia _ Speculators and investors who think the value of the Australian dollar will rise in hope of making a profit.