Question

The Australian Financial Review contains a table showing Australian exchange rates or you can find exchange rates on the web. Use either source to answer the following questions.

a)Does this table show nominal or real exchange rates? Explain.

b). What are the exchange rates between Australia and the United States and between Australia and Japan? Calculate the exchange rate between the United States and Japan.

c). If Australian inflation exceeds US inflation over the next year, would you expect the dollar to appreciate or depreciate relative to the US dollar?

Answer 1

Answer to Question 1:A

The Australian Financial Review shows the table containing australian exchange rates . The table always shows the nominal exchange rates .

Nominal exchange rates : signify how much foreign currency can be bought by paying the one unit of domestic currency for example :-1 Unit of australian currency can buy how many foreign currency say U.S.A , Indian is nominal exchange rates

Real Exchange rates : These interest rates signify the goods and services that can be exchanged domestic with how many goods services .

B.

Exchange rates between

Australia and the United States :-1 Australian Dollar equals 0.71 United States Dollar as on 23 Oct 08:54 AM

Between Australia and Japan:- 1 Australian Dollar equals 74.74 Japanese Yen as on 23 oct 08:56 am

United States and Japan:- 1 United States Dollar equals 104.60 Japanese Yen

Answer:=C

If australian inflation exceeds the U.S inflation over next year this will result the goods and services costly at australia and cheaper in the U.S and this will increase suppply of Australian dollar and demand of the dollar will be increased and slowly the exchange rate will get equiblirium and australian currency will get depreciated relative to the U.S Dollar .

Hope you Like Answer Hit Thumbs up and Give us feed back . Ask your Doubts in comments on Problem if any.

All the best Friends for your examination and most welcome