Factors Affecting Exchange Rate in Financial Markets

Running head: FINANCIAL MARKETS
Financial Markets
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FINANCIAL MARKETS1
Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Factors Affecting Exchange Rate................................................................................................2
Conclusion and Recommendations..................................................................................................4
References........................................................................................................................................5

FINANCIAL MARKETS2
Introduction
Exchange rate prevailing in the economy says well about the economies in terms of the
performance, level of business activities carried and the associated risk levels prevailing in the
economy with respect to macro-economic factors. The exchange rate that has been taken into
consideration for the purpose of analysis is the AUD/USD Exchange rate for a set of two-year
where relevant changes in the exchange rate will be taken into consideration (In2013dollars.com
2019).
Discussion
Factors Affecting Exchange Rate
The key macro-economic factors affecting the exchange rate in the economy can be
primarily in the field of changes in the interest rate, inflation level, and term of trade, political
stability and economic performance. The data period analyzed for the currency exchange rate
shows that the pair of currency exchange rate has generated a return of -0.44% and at the same
time the associated level of risk with the currency pair has been around 2.16% (Nytimes.com
2019). The negative return can be well related to the changing economic scenario and political
instability events like trade war, changing government rules and regulations that has occurred
and rising oil prices which has predominately affected the movement or volatility in the
exchange rate (Investing.com, 2019).
Interest Rate: The interest rate in the Australia has been predominately low in the Australian
region that is around 1.50% and the interest rate in the US has been around 2.40% currently
(Media 2019). The level of interest rate has been very low in the Australian economy where