Assume that Australia trades mostly with two countries only, the United States and the United Kingdom, and
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Question:
Assume that Australia trades mostly with two countries only, the United States and the United Kingdom, and that 65% of the trade is conducted with the United States, 30% with the United Kingdom, and 5% with the rest of the world. The exchange rates of the Australian dollar at two points in time, 0 and 1, are as follows:
Exchange Rates:
(AUD/USD) PERIOD 0 (1.4541) PERIOD 1 (1.7800)
(AUD/GBP) PERIOD 0 (2.1555) PERIOD 1 (2.5700)
- .Calculate the exchange rates in indirect quotation from an Australian perspective.
- .Calculate the percentage rates of depreciation or appreciation of the Australian
dollar against the two currencies.
- .Calculate the exchange rate relatives, using Period 0 as a base period, and the base value = 100
- .Calculate an unweighted effective exchange rate index, using Period 0 as a base period in which the index assumes the value of 100.
- .Calculate the normalised trade weights.
- .Calculate the trade-weighted effective exchange rate index using geometric approach, and explain the result with reference to the Australian dollar.
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