BAFI1002 The Foreign Exchange Market of Australia

   

Added on  2020-05-11

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Running head: MARKETINGMarketingName of the Student:Name of the University:Author Note:
BAFI1002 The Foreign Exchange Market of Australia_1
1MARKETINGThe foreign exchange market of Australia has witnessed huge growth rate in the pastyears. The foreign exchange market in Australia is the seventh largest market in the whole world.The Australian dollar is the sixth largest traded currency but in the international market. Thegrowth of Australian foreign exchange market is at par in the entire forex market. The share ofAustralian foreign exchange market has decreased from the past few years. The tariff rate ofAustralia was lowered so as to allow free trade. This paper will highlight the role of inflation rateand the interest rate in the foreign exchange market of Australia. There were certain new ruleswhich were implemented by the Australian Taxation Office for the determination of foreignexchange policies in Australia. Inflation rate in the Forex Market of AustraliaInflation rate and exchange rate of a country are closely related to each other. Theinflation rate in Australia was expected to be 1.90 percent by the end of September, 2017. Butthe inflation rate in Australia stands at 2.20 in the previous quarters. It is also projected to be2.20 by the end of 2020. There must be much more intervention in the inflation rate so that itmight affect the exchange rate. When the inflation rate is soaring, the central bank of Australiawill raise the interest rate so that there is slowdown in the economy and the inflation can bebrought down at an acceptable range. The Australian exchange rate became flexible during themid of 1970s. The crawling peg in the exchange rate involved several adjustments in the level ofexchange rate. There were also devaluations and revaluations in the exchange rate policy ofAustralia. The fixed exchange rate policy of Australia made it hard to manage the money supply.The targeted growth in the supply of money is known as monetary targeting and this is followed
BAFI1002 The Foreign Exchange Market of Australia_2
2MARKETINGin Australia. The floating exchange rate policy of Australia has benefited the economy to a largeextent. It has provided a barrier against the external shock in terms of trade and thus the economyabsorbed the inflationary and the deflationary pressure which affected the exchange rate regime.It also affected the output volatility during the past few years and thus this allowed the Reservebank to set the monetary policy accordingly (Pagan & Wilcox,2015).Interest Rate in the Forex market of AustraliaAs the economy of nation grows over time, the prices of the goods also tend to rise andthe consumers are able to spend more of their income. If the interest rate goes drastically high,the borrowed money also becomes expensive. The Central bank of Australia tries to fostergrowth in the economy by keeping the inflation rate low. In 2009, the credit of United Statesbegan to thaw as the economy was bottoming out. In such a situation, The Reserve bank ofAustralia began increasing their targeted benchmark rate. This led to economic expansion andthe foreign investors in Australia needed more Australian dollars to make more investment. Theforeign exchange dealers also purchased the Australian and the US dollar in pair and thus this ledto anticipated demand of the Australian dollar. The traders earned an additional dividend of 30%when the foreign exchange of Australia has risen. The foreign investors are thus finding lessattractive to invest in the Australian economy and they will move the fund in other countries toyield better returns (Engel, 2013).Australia is a wealthy economy and it is dependent on the mining and agricultureindustry. The non competitive cost and the higher interest rate have made it difficult for theAustralian economy to compete with the other countries. This has led to lower demand ofAustralian demand. The discretionary changes which were made in the Australian dollar in
BAFI1002 The Foreign Exchange Market of Australia_3

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