Write a short essay to describe and explain the behaviour of the exchange rate b
ID: 2614755 • Letter: W
Question
Write a short essay to describe and explain the behaviour of the exchange rate between the Australian dollar and the U.S. dollar over the period 2000-2015. Make use of the models and concepts presented in this course and combine them with the information contained in the following figures.
FRED U.S. / Australia Foreign Exchange Rate 1.2 O 1.0 0.9 0.8 0.7 i 0.6 0.5 0.4 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: Board of Governors of the Federal Reserve System (US) research.stlouisfed.org myf.red/g/4v9v Real GDP Growth: Australia versus U.S. FRED Real Gross Domestic Product Constant Price Gross Domestic Product in Australia© 5 4 3 2004 2006 2008 2010 2012 2014 research.stlouisfed.org myf.red/g/4vafExplanation / Answer
Exchange rate behaviours refers to changes in price of foreign currency in terms of domestic currency. This usually happens due to increase in export or import, foreign investment and so on. Based on these transactions there there is demand and supply for currencies which makes the price appreciated or depreciated in relation to foreign currency. Now we would analyse the exchange rate behaviour between USD and australian dollar between 2000-2015. The australian dollar has greatly appreciated against US dollar, there were could be many reasons due to which the value has appreciated but one of the key reason was mining. From 0.65 US cent in 2000 to US $1.10 in 2011 which was the highest appreciation. The main reason the australian dollar has appreciated is due to rise in prices for australian commodity. The rise in commodity prices in US of australia leads to increase in equilibrium real exchange rate since it leads to increase in the demand for australlian goods and in turn the currency of the country which leads to appreciation of australian dollar. The cash rate, 90 day bill yield and short term nominal interest rates were at attractive rates which attracted the foreign investors to invest in australia leading to increase in demand for australian dollar.
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