Exchange Rates part 1 Basically, an exchange rate is the price of one currency in terms of another currency
Measurement Australia’s exchange rate can be compared to every country in the world However, we in Australia use the US as a benchmark This is because the USD is the mostly widely used in the world.
Value Go to the internet and find the value of 1 Australian dollar in terms of • USD • Pound Sterling • Euro • Rand • Singapore $ • What trends can you see when going about this?
Factors that affect theexchange rate The exchange rate is not fixed. It is determined by supply and demand. • What does this mean??? This is known as a flexible or floating exchange rate
Supply for the AUD Comes from Australians who • Buy imports • Send income and currency out of Australia • Invest overseasWhy are these supply factors for the AUD?
Demand for the AUD Buy Australian exports Transfers money into Australia Invests into AustraliaWhy are these all demand factors for theAUD?
What happens when demandand supply move Demand exceeds supply then the dollar appreciates If supply exceeds demand then the dollar goes down or depreciates FOR EXAMPLE If demand for exports increases this will lift the dollar.
Other factors affecting theexchange rate Economic growth of the domestic and trading partner Inflation between the domestic and trading partner country Interest rates between the domestic and trading partner country
Questions Identify and explain the different sources of supply and demand for the Australian dollar Explain how interest rates and inflation can influence the exchange rate
A particular slide catching your eye?
Clipping is a handy way to collect important slides you want to go back to later.