Exchange rates. The exchange rate for the Australian dollar is currently a $1.40

Question

Exchange rates. The exchange rate for the Australian dollar is currently a $1.40. This exchange rate is expected to rise by 10 percent over the next year. A. Is the Australian dollar expected to get stronger or weaker? B. What do you think about the relative inflation rates in the United States and Australia? C. What d you think about the relative nominal interest rates in the United states and Australia? Exchange rates. The exchange rate for the Australian dollar is currently a $1.40. This exchange rate is expected to rise by 10 percent over the next year. A. Is the Australian dollar expected to get stronger or weaker? B. What do you think about the relative inflation rates in the United States and Australia? C. What d you think about the relative nominal interest rates in the United states and Australia? A. Is the Australian dollar expected to get stronger or weaker? B. What do you think about the relative inflation rates in the United States and Australia? C. What d you think about the relative nominal interest rates in the United states and Australia?

Explanation / Answer

A. Is the Australian dollar expected to get stronger or weaker?

The Australian dollar is expected to weaken relative to the dollar, because it will take more Australian dollar in the future to buy one US dollar than it does today.

B. What do you think about the relative inflation rates in the United States and Australia?

The inflation rate in Australia is higher as its currency is going to depreciate.

C. What d you think about the relative nominal interest rates in the United states and Australia?

Nominal interest rates in Australia are higher, relative real rates in the two countries are the same

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