Question

In: Economics

Which of the following is not a source of supply for AUD in the foreign exchange...

Which of the following is not a source of supply for AUD in the foreign exchange market?

a.   imports of goods and services

b.   income payments to overseas

c.   central bank sales of AUD

d.   financial capital inflow  

Important: please explain your answer properly. Please also explain why other options are not correct.

Solutions

Expert Solution

(a)

Imports of goods and services

When Australia import goods and services then it has to pay for them in foriegn currency. To obtain foriegn currency, Australia has to supply AUD. So, this is the source of supply of AUD

Therefore, this option is not correct.

(b)

Income payments to overseas

In order to make payment overseas, foriegn currency is needed. To obtain foriegn currency, Australia has to supply AUD. So, this is the source of supply of AUD

Therefore, this option is not correct.

(c)

Central bank sales of AUD

When central bank make sale of AUD then this indicates a supply of AUD.

Therefore, this option is not correct.

(d)

Financial capital inflow

Financial capital inflow implies the flow of capital into the Australia.

When foreigners make investment into Australia then this implies the financial capital inflow and to make such investment they need AUD.

So, financial capital inflow results in a demand for AUD.

Hence, the correct answer is the option (d).

Rahul Sunny answered 2 years ago
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