Question

A description of the exchange rate system used by this Australia

Answer 1

Answer :-

Exchange rate system is the purchasing power of a currency in the term of another currency. If the euro is strenthen than the dollers, it will mean that more dolles will be obtained by exchanging the euro.
Australia is following Floating Exchange Rates in which currency exchange rate is not controlled by the government , it is determine by the market forces .

This Floating exchange rate is based on two systems -

1) The Bilateral Exchange Rate against the USD -
Since the dollar has become a global currency today, it is an important exchange marker. So when we compare the Australian dollar to the US dollar, then it is called Bilateral exchange rate.

2) Trade weighed Index (TWI) -
The dollar is an important exchange marker, but cannot be the only marker, so when we compare the AUD against the weighted average of other major currencies , it is called trade weighed index . In TWI currency of china , japan , uk , new Zealand , Singapore etc are listed.

Factors affecting the exchange rates -

- If imports is high compared to exports, exchange rate falls
- Increasing trade deficit also reduces the exchange rates
- Increasing Current account deficit also reduces the exchange rates
- if inflation is high , it will push down the power of currency