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Syllabus Notes

The document discusses the concept of exchange rates, specifically focusing on Australia's exchange rate and the trade weighted index. It explores the relationship between the balance of payments and exchange rates, factors affecting exchange rates, and the effects of exchange rate movements on consumers and producers. Additionally, it highlights trends in Australia's exchange rate over the past decade and the underlying reasons for these trends.

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John Exon
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5 views2 pages

Syllabus Notes

The document discusses the concept of exchange rates, specifically focusing on Australia's exchange rate and the trade weighted index. It explores the relationship between the balance of payments and exchange rates, factors affecting exchange rates, and the effects of exchange rate movements on consumers and producers. Additionally, it highlights trends in Australia's exchange rate over the past decade and the underlying reasons for these trends.

Uploaded by

John Exon
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Exchange Rates

The concept of an exchange rate, including The concept of the trade weighted index. The relationship between the balance of Effects of movements in the exchange
Australia’s exchange rate. payments and the exchange rate. rate.

Consumers

Producers (export)

Producers (compete against imports)

Producers (rely on imports)

The determination of, and movements in, the The factors that affect the exchange Trends in Australia’s exchange rate over
exchange rate using the demand and supply rate. the last ten years.
model.

Macroeconomy (Econ Growth, output, L.S, inflation, emp, net


exports)
Chapter 6 – Exchange Rates
Some potential focus questions

 The concept of an exchange rate, including Australia’s exchange rate.


Definition of an exchange rate
Why Aus needs an exchange rate
 The concept of the trade weighted index.
Definition of the TWI
How it is calculated
What currencies and why
 The relationship between the balance of payments and the exchange rate.
As the BoP calculates foreign transactions between people of Australia and the RoW, a change in the BoP will affect the exchange rate (and vice versa).
Auto-stabilising nature of the exchange rate and the trade balance.
Impact of increases/decreases of trade flows to exchange rate
Impact of increases/decreases of income flows to exchange rate
Impact of increase/decreases of foreign investment flows in/out on the exchange rate.
 The determination of, and movements in, the exchange rate using the demand and supply model.
Can I model and demonstrate using a demand and supply model how a currency can appreciation or depreciate.
 The factors that affect the exchange rate.
Can I identify and explain the different factors that affect the exchange rate for the AUD.
Can I distinguish them between factors that affect the supply of the AUD and factors that affect the demand for the AUD
 Effects of movements in the exchange rate.
Can I identify and explain the effects of a movement in the AUD.
 Consumers (goods, services)
 Producers (export)
 Producers (who compete against imports)
 Producers (who sell imported goods eg JB)
 Impact on the macroeconomy (Economic growth,output, employment, income, Living Standards, etc).
 Trends in Australia’s exchange rate over the last ten years.
 Can I identify trends in Australia’s exchange rate
 Can I account for the reasons as to why the exchange rate has the trends it has. ie Reasons for depreciation, reasons for appreciation. (supply/demand increases/decreases)

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