Question 1
Since December 2010, the Australian Dollar has generally been above parity with the US
Dollar. To make a currency strong, another one has to be weaker. One of the major factors that determine a currency's value is what, and how much, a country sells to other countries.
Trade is the ultimate driver of whether a currency is strong or weak (SSFS Australia). The
Reserve Bank of Australia (RBA) calculated a Trade-Weighted Index of the Australian dollar. What this means is that, RBA compared the Australian dollar with currencies of their major trading partners, weighted by the trading importance. As seen from Table 1, it shows the Trade-Weighted Index and the US/Australian dollar exchange rate match closely. With these table, it shoes that the Australian dollar's strength is broad based against the currencies of other major trading partners and not only against the US dollar.
Table 1
With strong demand for mineral resources such as iron ore and coal from China and Asia, this creates both income from sales and capital inflows for further investment in the mineral resources sector. With this flow of money, this in turn lifts the Australian dollar. Another factor that caused the Australian dollar to strengthen against the US dollar is with the boost of
Asha C Philips Assignment 3
Economics for Transport Managers 2 economy in the mining sector, this makes Australia an attractive destination for potential and current international investors, especially when compared with struggling economies such as
Europe and the US.
A strong economic strength means that the RBA has to keep inflation under the belt to ensure a stable economy without overheating or creating asset bubbles and destabilising outcomes.
To ensure inflation doesn’t go o...
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... occur. As said earlier in this assignment, interest rates and inflation have an inverse relationship with one another. This can be represented as people tend to save less in an inflation affected economy due to the high price of services and goods. With inflation comes a demand in pay rise. This is often provoked by organized employee groups, such as trade unions. With higher demand for pay, this will increase spending which in turn increases the price even more. This is termed as the wage-price spiral and will keep going in a vicious cycle. With the inflation comes the standard of living. To maintain the same standard of living, one has to pay more.
Due to the rise of prices, one has to fork out more money for the same goods and services that they use before the inflation. Financial planning also becomes difficult as the value of money decreasing with the rising
First, I will discuss the time period between 1973-1974. Because the unemployment and inflation rates are higher than normal, we can assume that the aggregate-demand curve is downward-sloping. When the aggregate-demand curve is downward-sloping, we know that the economy’s demand has slowed down. When the economy’s demand has slowed down, businesses have to choice but to raise prices and lay off workers in order to preserve profits. When employers throughout the country respond to their decrease in demand the same way, unemployment increases.
Westpac Institutional Bank May 2010, ‘Westpac Market Insights Australia, New Zealand, G3 & China’. Retrieved June 6th, 2010 from - http://www.westpac.com.au/about-westpac/media/reports/australian-economic-reports/
Iron ore is Australia’s highest valued and most successful commodity export (see Figure 1). Throughout the 1990s and early 2000s, this mining industry played a key role in both Australia’s and the global economy. The change in the industry was brought about, particularly, by the many operations and movements resulting from globalisation that pushed Australia’s exports further than they had ever been. In 2007, “Australia produced around 16% of the world's iron ore and was ranked third behind China (32%) and Brazil (19%)” (Minerals Council of Australia, 2008). Although Australia is not the largest producer, it is currently the largest exporter of iron ore in the world (Australian Minerals Industry, 2008).
Increased demand on a global scale due to increase in manufacturing across the world, opposite in U.
Economy condition in Australia shows upward trends proven by the 3% increase of its economic growth (Figure 1) and decrease in the inflation (Appendix 1). Meanwhile,
• A rise in the price level reduces the real value of people’s income and wealth and hence decreases their ability to consume.
When decisions bases on a consumers finances have following consequences further than the near future, then an individuals' success economically could depend on the ability they have to foresee the upcoming rate of inflation. according to statistics, higher expectations for inflation were reported by females who were poorer, they were single and they were less educated. More specifically, higher expectations for inflation were reported by people who focused more-so with how they can cover future purchases and expenses and the prices they will pay, and by ones who have lower knowledge on financial literacy.
There are a several factors which can influence the exchange rate of a given country such as interest rate of a country, inflation rate and money supply. In some reason non-theoretical or non-economical factors can influence the exchange rate to appreciate or depreciate against the other currencies.
The American dollar has been the world's principal currency since the end of World War II (Wong & Khan, 2006). "Following the breakdown of the Bretton Woods system in 1970, the US dollar has been the benchmark for other national currencies. No other currencies, the deutsche mark, yen or the pound sterling, have come to being a close contender for the dollar's international role" (Wong & Khan, 2006).
The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?
Inflation is defined as an increase in the expected price level and has been the signal for an improving economy, but it has also weakened an economy due to the unemployment it usually produces which usually hurts the Middle class the most. A healthy rate of inflation means an expanding economy due to higher tax revenues for the government and higher wages for businesses that are booming due to the high demand of their products. But if inflation surpasses of what is expected than employer will have to reduce wages to meet these new prices. When the Federal Reserve creates inflation most argue that this is robbing people of the money that they have saved because they have to use it due to the rise in prices. Printing
Inflation; ‘a situation in which prices rise in order to keep up with increased production costs… result[ing] [in] the purchasing power of money fall[ing]’ (Collin:101) is quickly becoming a problem for the government of the United Kingdom in these post-recession years. The economic recovery, essential to the wellbeing of the British economy, may be in jeopardy as inflation continues to rise, reducing the purchasing power of the public. This, in turn, reduces demand for goods and services, and could potentially plummet the UK back into recession. This essay discusses the causes of inflation, policy options available to the UK government and the Bank of England (the central bank of the UK responsible for monetary policy), and the effects they may potentially have on the UK recovery.
Foreign exchange products are especially important for multinational businesses because they guide the international transactions of goods, capital and services. Relations between almost all currencies used are made public daily, showing the values that are exchanged each other, although there is almost always a more important currency used as a reference for measuring the value of the other. The US dollar, in most of the world, is used for this purpose (Watson & Head, 2010).
Seen another way, this apparatus measures the "genuine"— that is, balanced for inflation—estimation of income after some time. Note that the segments of the CPI don't change in cost at the same rates or even fundamentally move the same course. For instance, the costs of auxiliary training and lodging have been expanding a great deal more quickly than the costs of different merchandise and benefits; in the interim fuel costs have risen, fallen, risen again and fallen once more—every time strongly—in the previous
The foreign exchange markets allow the conversion of currencies, where it helps the firms to conduct trade more efficiently across the national boundaries. In addition, firms can shop for low cost financing in capital markets all over the world and then use the foreign exchange market to convert the foreign currency that they got into whatever currency they require. With the foreign exchange nowadays, anyone can go to other country by converting their domestic currency into the foreign currency. The foreign exchange will follow the rate of exchange according to the country's rate. But still, the foreign exchange market is actually dealing with fluctuation where sometimes it has upward and downward movement.