can't do this mc question (1 Viewer)

[malcolm21]

i got d, i thought the graph shows aus appreciating against foreign currency so lower demand for that foreign currency, but apparently it's the opposite?

 

[sy37]

The dollar depreciated, hence there must be an increase in supply of the AUD.

D is wrong because if there is an increased demand for Australian exports by foreigners then the AUD would have appreciated since supply would have decreased.

C is wrong because if there was a decreased demand for Australian assets by foreigners, then supply would decrease thus AUD will appreciate.

B is wrong because if Australians demand less foreign imports, the supply of AUD would decrease and the AUD appreciates

A is correct because if Australian's demand more assets by foreigners, then the supply of AUD will increase. If the supply of AUD increases, demand will fall --> depreciation

thoughts? pretty sure my reasoning is not spot on but that's the gist of it anyway

 

[aanthnnyyy]

i got d, i thought the graph shows aus appreciating against foreign currency so lower demand for that foreign currency, but apparently it's the opposite?

The answer is (A) because if there is an increase in the supply of the dollar it suggests there is capital outflow. Since Australians are spending more on foreign assets they must exchange the dollar and hence increase supply of dollar. In turn this will actually put downward pressure on dollar and lead to a depreciation

Edit: sy got to me b4hand and is simplified

 

[atargainz]

The dollar depreciated, hence there must be an increase in supply of the AUD.

D is wrong because if there is an increased demand for Australian exports by foreigners then the AUD would have appreciated since supply would have decreased.

C is wrong because if there was a decreased demand for Australian assets by foreigners, then supply would decrease thus AUD will appreciate.

B is wrong because if Australians demand less foreign imports, the supply of AUD would decrease and the AUD appreciates

A is correct because if Australian's demand more assets by foreigners, then the supply of AUD will increase. If the supply of AUD increases, demand will fall --> depreciation

thoughts? pretty sure my reasoning is not spot on but that's the gist of it anyway

Yep you are correct, except your reasoning for D and C. I would've thought:
D is wrong, since an increase demands for aus exports by foreigners will increase the demand for the $A
C is wrong, since a decrease in demand for aus assets by foreigners will decrease the demand for the $A
Both don't affect the supply side.

 

[malcolm21]

Thanks for that guys, does anyone know what to say for this question? The marking guidelines dont have a sample answer:

Briefly explain the impact on global trade flows of EITHER one contemporary

trading bloc OR one international organisation.

 

[atargainz]

Thanks for that guys, does anyone know what to say for this question? The marking guidelines dont have a sample answer:

Briefly explain the impact on global trade flows of EITHER one contemporary

trading bloc OR one international organisation.

I'm assuming they want an actual example.

For trading blocs I would talk about the EU, and how its formation closed off Australia's trade flows with the UK. Meaning now trade flows have been redirected towards economies in the Asia-Pacific region (china, japan, south korea).

For international organisations, I would talk about how the WTO has advanced global trade agreements, and promoted free trade.

 

[sy37]

Yep you are correct, except your reasoning for D and C. I would've thought:
D is wrong, since an increase demands for aus exports by foreigners will increase the demand for the $A
C is wrong, since a decrease in demand for aus assets by foreigners will decrease the demand for the $A
Both don't affect the supply side.

If the demand increases, then supply of the AUD would also have decreased since more people are buying it. Since the supply decreased, by the law of supply and demand, the prices will go up and hence the currency appreciates.

...or I am missing something here, not sure..

 

[Ekman]

If the demand increases, then supply of the AUD would also have decreased since more people are buying it. Since the supply decreased, by the law of supply and demand, the prices will go up and hence the currency appreciates.

...or I am missing something here, not sure..

That doesn't make sense... So what you are saying is that an increase in demand for AUD will cause a decrease in supply of AUD?

 

[sy37]

That doesn't make sense... So what you are saying is that an increase in demand for AUD will cause a decrease in supply of AUD?

yes

 

[spatula232]

yes

Why wouldn't it simply be an increase in demand? What's your reasoning?

 

[sy37]

Why wouldn't it simply be an increase in demand? What's your reasoning?

I think im wrong..I wrote that half brain dead

 

[turnerloos]

Why wouldn't it simply be an increase in demand? What's your reasoning?

what he means is since investors are demanding more aud, they would purchase the currency leading to a decrease "pool" of supply of aud in the forex mkt.

I think im wrong..I wrote that half brain dead

and yes you are wrong, you would only consider that there's an increase in demand for aud. supply doesnt decreases as well as far as the graph is concerned.

 

[sy37]

what he means is since investors are demanding more aud, they would purchase the currency leading to a decrease "pool" of supply of aud in the forex mkt.

and yes you are wrong, you would only consider that there's an increase in demand for aud. supply doesnt decreases as well as far as the graph is concerned.

YES +1

I was looking for the term 'forex market'. The supply of AUD in the forex market there would increase

not sure about your second comment