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Question 1

exchange rate

Answer 1

The exchange rate is the value of one currency relative to another

Question 2

Floating exchange rate –

Answer 2

value of the currency is determined by demand for and supply of the currency

Question 3

Demand =

Answer 3

anytime money comes into AUS from another country (currency) there is demand for AUD from FOREX

-exports (increase exports, increases demand for AUD)

Question 4

Supply =

Answer 4

anytime money leaves AUS must be exchanged (sold) to a new currency. hence supplied to FOREX

If Australian residents need to purchase anything from overseas (Purchase imports)
they need to convert the AUD into foreign currency. This causes an increase in the supply of the AUD
-invest overseas

Question 5

Depreciation

Answer 5

The value of the AUD has gone down
Our currency now buys less of a foreign currency
Caused by a _ in demand and/or _ in supply of the AUD

Question 6

Appreciation

Answer 6

The value of the AUD has gone up
Our currency now buys more of a foreign currency
Caused by an _ in demand and/or _ in supply of the AUD

Question 7

commodity prices

Answer 7

higher prices mean more AUD is required to purchase a given amount (volume) of exports

-increases demand for AUD for same amount of exports

Question 8

foreign investment

Answer 8

investments by AUS overseas creates supply for AUD

investments by foreigners into AUS creates demand for AUD

Question 9

credit ratings

Answer 9

measures the creditworthiness of a country, and their likelihood of paying back loans and interest

eg. if AUS NFD increases, reduces demand for AUS investment, contributing to the exchange rate depreciation as fewer funds are enter country (reduce demand for AUD) and more funds exit the country as investors want less risky business (increases supply)