TFIN301 International Business Finance

Individual assignment for

TFIN301 International Business Finance

This assignment contains seven questions, 20% of full mark (or equivalent to 20 marks). This assignment should be submitted via turnitin till 12/10/2019.

Given the supply and demand curves of the exchange rate between US dollar and Australian Dollar,(),as:

= 5 + 0.2

= 10 − 0.6

where is the supplied quantity of foreign currency, is the demanded quantity of foreign currency, and is the price of foreign currency. Here, the US dollar is foreign currency and the Australian Dollar is domestic currency.

1. Calculate equilibrium price. (1 mark)

2. Draw the supply and demand curves of the exchange rate in a single figure when =

   2, 4, 6, 8, 10. We call this figure as Fig. 1 (1 mark)

3. What happen for the balance of payment (BOP) if exchange rate places under the equilibrium price? (1 mark)

4. Explain the effect of spectaculars’ expectations on the equilibrium price of foreign currency.

   Draw this effect on Fig. 1 as well. (2 marks)

5. Explain the effect of spectaculars’ Destabilising and Stabilising on the equilibrium price of foreign currency. Explain these two strategies in detail and show changes in foreign exchange

   rate on Fig. 1. (3 marks)

6. Subsequently, the following figure, Fig. 2, exhibits the trend of changes in the Australian dollar relative to the US dollar from 1983 to 2008. Explain (at least 700 words) the reasons of depreciation (or appreciation) of AUD. You should identify the reasons and explain them in detail. You should show changes in AUD relative to US dollar on Fig. 1. For each reason, you

   should draw a figure and explain your reasons on the figure. (6 marks)

   Fig. 2. The trend of changes between AUD and USD 1

7. Explain the role of Australian government and Australian central bank in adjusting AUD. Assume that you are a policy maker in the two bodies, give me reasons how Australian government can appreciate AUD relative to USD. Similarly, give me reasons how Australian central bank can appreciate AUD relative to USD (at least 700 words). (6 marks)

2