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stion 13 6 out of 10 poi If the RBA surpris es the market by raising its cash rate target to 3% the AUD w l immediate a appreciate / depreciate against all other currencies This immediate change of the AUD value is making our exports [b] (cheaper / more expensive) and thus [c] (fosters / dampens) economic activity and inflation In Japan the interest rate is close to 0%. Therefore, the AUD is very likely to (d] (appreciate / depreciate) against the Yen over the coming year. In Indonesia t interest rate is around 6% Therefore, the AUDis very likely to e (apprec ate / depreciate) against the ndonesian Ruphia over the com ng year. Specified Answer for: a appreciate Specified Answer for b more expensive Specified Answer for c dampens Specified Answer for d apprecie te Specified Answer for e depreciate Correct Answers for: a
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Answer #1

Answer 13)

If the RBA surprises the market by raising its cash target to 3%, AUD will immediately appreciate against all other currencies. This immediate change of the AUD value is making our exports more expensive and thus dampens economic activity and inflation. in JAPAN, the interest rate is close to 0%. therefore, AUD is very likely to appreciate against the yen over the coming year. In Indonesia the interest rate is around 6%. Therefore, the AUD is very likely to depreciate against the Indonesian Rupiah over the coming year Explanation: The basic rule that applies is that the changes in the demand and supply of a countrys currency effects the change in exchange rate of its currency. If the demand of currency rises, then the currency appreciates BLANK 1 If RBA hiked its cash target (equivalent to overnight rate used by banks to lend to each other to fulfil their daily cash needs), then overall interest rates also increases. An increase in interest rates (keeping other countries rates same), makes the domestic country attractive to foreign investments. Hence, demand for domestic currency (AUD) rises. As demand for AUD rises, the currency appreciates.BLANK 2 Currency appreciation makes foreign goods relatively cheaper to domestic citizens and make domestic goods relatively more expensive to foreigners. Thus, exports become more expensive BLANK3 An increase in imports and decrease in exports reduces the overall economic activity in the economy. The stock of goods gets piled up due to less demand and, thus inflation also is restrained. Hence, both economic activity and inflation dampens. BLANK 4 Relatively lower interest rates in Japan, makes Australia attractive investment decision. Thus, demand for AUD rises and AUD appreciates. BLANK5 Relatively higher interest rates in Indonesia, makes Indonesia attractive investment decision. Thus, demand for AUD falls and AUD depreciates

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