Question

Chapter 5 Bruin Aircraft, Pty Ltd Factors affecting exchange rates (14 marks) Bruin Aircraft, Pty Ltd is a designer and manufacturer of acrgolane parts. Its production plant is based in Melboume, Australia. About one-third of its sales are exports to the United Kingdom. Though Bruin invoices its exports in Australian dollars, the demand for its exports is highly sensitive to the value of the British pound. In order to maintain its parts inventory at a proper level, it must forecast the total demand for its parts, which is somewhat depcode to the forecasted value of the pound. The treasurer of Bruin was assigned the task of forecasting the value of the pound (against the Australian dollar) for each of the next five years. He was planning to request from the company's chief economist forecasts on all the relevant factors that could affect the pound's future exchange rate. He decided to organise his worksheet by separating demand-related factors from the supply-related factors, as illustrated by the headings below: Help the treasurer by identifying the factors in the first column of the following table, and then checking the second or third (or both) columns, Include any possible government-related factors and be specific (tie your description to the specific case background provided here). Factors that can affect the value of the pound Check (4) here if the factor influences the Australian demand for pounds Check (4 here if the factor influences the supply of pounds for sale WS-LIK INF -INFUK income Growth Differential New Australian Quotas on Imports from UK Australian Tariffs on Imports from UK New UK Quotas on Imports from Australia New UK Tariffs on Imports from Australia Government Intervention to Purchase SA with Pounds Government Intervention to Purchase Pounds with AS Government Tax to be Imposed on Interest Income Earned by UK Investors from Future Australian Investments Government Tax to be Imposed on Interest Income Earned by Australian Investors from Future UK Investments

Answer 1

The completed table is provided as below:

Factors that can affect the value of the bond	Check (✔) Here if the Factor Influences the Australian demand for pounds	Check (✔) Here if the Factor Influences the supply of pounds for sale
iAus-iUK	✔	✔
INFAUS -INFUK	✔	✔
Income Growth Differential	✔	✔
New Australian Quotas on Imports from UK	✔
Australian Tariffs on Imports from UK	✔
New UK Quotas on Imports from Australia		✔
New UK Tariffs on Imports from Australia		✔
Government Intervention to Purchase $A with Pounds		✔
Government Intervention to Purchase Pounds with $A	✔
Government Tax to be Imposed on Interest Income Earned by U.K. Investors from Future Australian Investments		✔
Government Tax to be Imposed on Interest Income Earned by Australian Investors from Future U.K. Investments	✔