Tutorial 7 (Week 11)
1 Tell whether each of the economic actors in the following list would be suppliers or demanders in the foreign exchange market of Australian dollars:

(a) an Australian tourist in Europe:
= supplier of AUD

(b) a Japanese firm exporting to Australia
= supplier of AUD

(c) a U.K. investor who wants to buy Australian stocks =
= demander of AUD

(d) a U.K. tourist in Australia
= demander of AUD

(e) a German firm importing from Australia
= demander of AUD

(f) an Australian investor who wants to buy real estate in America
= supplier of AUD
2. Explain whether each of the following changes would tend to appreciate or depreciate the
Australian dollar, using supply and demand curves for the foreign exchange market to illustrate your answers:
(a) higher interest rates in Japan
Japan is reducing the supply of Japanese YEN depreciate the AUD in comparison to the YEN.

(b) faster economic growth in Japan
Appreciate the AUD in comparison to the YEN as the Japanese will have more money to spend on Australian goods

(c) a lower rate of inflation in Australia relative to other countries
Appreciate the AUD relative to other countries

(d) a tight U.S monetary policy
Depreciate the AUD in comparison to the US dollar

(e) a tight monetary policy in Australia
Appreciate the AUD in comparison to other countries

f) an expansionary fiscal policy in Australia
If the government increased spending this may put pressure on increasing interest rates relative to other countries appreciating the AUD.

In a flexible exchange rate regime, analyse the impact on the exchange rate of the following: a) There is a downturn in real GDP as the Australian economy falls into recession.
This would lower the AUD compared to other countries

b) The closing of a large Australian coal mine as its deposits become