Economics

The purpose of this extended written response is to analyse the media articles, and respond to them. I doing this I will explain how the exchange rate is determined, what the exchange rate is, how it reflects international trade and why changes occur. The next step before I do this would be to explain what international trade is and why with this strange method of acquiring goods from afar there is a need for exchange rates. International trade is when countries exchange goods and services with one another. Because of the complexities of such an act and because of the different cost for certain materials and value that separate countries place on there material possessions, an exchange rate is set up. This is a forever varying price that each country evaluates there currency is worth to the others.

The two pieces of stimulus give us a good idea of what our currency looks like when it is up on the US dollar and when it is down

The first In the first article “Aussie $ slumps to two-month low” Courier Mail, 6th April, 2005.

The article tells us that the Australian dollar is weakening against a strengthening US dollar. It states that late the day before a certain day the local dollar was trading at US$76.45, down from US77.05 the day before. This is telling us that our currency didn’t become stronger with the appearance of better than expected trade data, but would if we were to raise the interest. The exchange rate is determined by the value that either country participating in international trade is producing and selling a commodity for. We were also told that the trade deficit had narrowed slightly. A trade deficit is when a country imports more goods from another country than it exports to that country, So by the trade deficit narrowing it means that we are not breaking our quota and