ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Higher demand for Australian exported products OR a rise in the price of products that Australia exports
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A rise in the cash rate in Australia
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A fall in official interest rates in Australia
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More Australians travelling overseas for holidays
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Detailed explanation-1: -If the exchange rate between the Australian dollar and the US dollar is 0.75 then one Australian dollar can be converted into US75c. An increase in the value of the Australian dollar is called an appreciation. A decrease in the value of the Australian dollar is known as a depreciation.
Detailed explanation-2: -Typically, the Australian dollar appreciates when prices in global equity markets increase, and depreciates when prices in equity markets decline.
Detailed explanation-3: -If the dollar appreciates (the exchange rate increases), the relative price of domestic goods and services increases while the relative price of foreign goods and services falls.
Detailed explanation-4: -Essentially, this is because higher interest rates in a particular currency offer investors (those who buy a currency) a higher return relative to other currencies. In an idealised example, when interest rates rise, investors are attracted to a currency and invest in it more heavily.