Does TWI always move opposite to exchange rate? (1 Viewer)

[unfold]

AHH!! This is one of the question in the 03 HSC question. Its this: explain why the exchange rate can move in the opposite direction to the TWI. WHY??

Here's my answer (correct me!! please!): TWI is trade weighted, that is, the index varies according to the change in BOP over time. However the exchange rate is simply a bilateral measure (e.g. us to aud) of the rise/fall in purchasing power of AUD. So, while purchasing power increases, that is, an appreciation where import price falls, many may still wish to buy less imports.

 

[mattchan]

I dunno the correct answer but i'll have a punt
When the dollar appreciates, that means the TWI will go in the opposite direction, ie down. Because the dollar makes the economy's exports less competitive, therefore less volumes of goods being traded out of the country, hence TWI will go down since TWI measurse the volume of trade against our major partners


Cheers

 

[pungpui]

wtf r u guys talkin about!?!

TWI has nothing to do with exports and crap. TWI simply measures movements of the Aussie dollar against a basket of currencis, usually of Australia's trading partners according to their importance. In other words, if you compare bilaterally $AUD to $USD, while the $USD might have gone down, other currencies such as the yen and others might have gone up. This makes the TWI move in the opposite direction. The title of your post includes the word 'always'. Definately not the case. What if they all go up? Its a possibility but NOT always.

and trust me on this one...i clarifed with my teacher (an hsc marker) last year, and i got 95 in eco.

 

[mattchan]

yes you do have a point.

But i dont agree on the fact exports aint related to TWI. yes, TWI measures the "movements of the Aussie dollar against a basket of currencis". But currencies dont just move by themselves, and they aremoved by the demand and supply of that currency. So they are related to exports.

 

[pungpui]

yea of course exports n all that affect exchange rates BUT your getting far too off track here...the question is asking ONLY about bilateral vs TWI, not why exchange rates move...you answer the question that they ask, not go round in circles your wasting time!

 

[Eagles]

wtf r u guys talkin about!?!

TWI has nothing to do with exports and crap. TWI simply measures movements of the Aussie dollar against a basket of currencis, usually of Australia's trading partners according to their importance. In other words, if you compare bilaterally $AUD to $USD, while the $USD might have gone down, other currencies such as the yen and others might have gone up. This makes the TWI move in the opposite direction. The title of your post includes the word 'always'. Definately not the case. What if they all go up? Its a possibility but NOT always.

and trust me on this one...i clarifed with my teacher (an hsc marker) last year, and i got 95 in eco.

What he said is correct.

 

[unfold]

ahh thankyou..

thankyou ppl for all ur contributions! it does make more sense now!

 

[Rorix]

yes you do have a point.

But i dont agree on the fact exports aint related to TWI. yes, TWI measures the "movements of the Aussie dollar against a basket of currencis". But currencies dont just move by themselves, and they aremoved by the demand and supply of that currency. So they are related to exports.

except that a huge majority of foreign exchange transactions aren't trade related

 

[pete_mate]

that doesnt matter, its an index of changes in currencies of australia's major trade partners, so in effect it is affected by financial flows if uganda ( or some other country we dont trade with) buys heaps of euros, the euro will go up, and then our TWI, all other things being equal

 

[Rorix]

i was correcting the misconception that currencies don't just move by themselves.