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dinara econ cards
Question | Answer |
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define exchange rate | the price of one country’s currency in terms of another country’s currency |
define foreign exchange market | the market in which currencies of different countries are bought and sold |
define foreign exchange | the currency of another country that is needed to carry out international transactions |
define the trade weighted index | a ‘basket’ of currencies weighted according to their importance in trade flows with Australia. |
define a floating exchange rate | an exchange rate that is determined by demand and supply |
what causes a depreciation? | AUD demand decreases OR supply increases |
what causes a appreciation? | AUD demand increases OR supply decreases |
what causes demand for AUD to increase? | 1. more exports, 2. received income or investment (from overseas) |
what causes supply for AUD to increase? | 1. more imports, 2. paid income or investment (to overseas) |
what happens to the exchange rate if inflation is high? | people will buy imports = supply of AUD increases |
what happens to the exchange rate if interest rates is high? | demand for AUD increases, why? AU is more attractive to store savings or invest in |
what happens to the exchange rate if terms of trade is high? | demand for AUD increases, why? Exports have increased |
how does depreciation affect consumers and producers? | Imports are more expensive (consumers lose) Exports are cheaper to overseas (producers win) |
how does appreciation affect consumers and producers? | Imports are cheaper (consumers win) Exports are more expensive to overseas (producers lose) |
how does depreciation affect the economy? | Economic growth because of increased exports |
how does appreciation affect the economy? | Contraction effect because of decreased exports |