exchange rates question (2marks) (1 Viewer)

[jky.]

1. Briefly explain why an exhange rate can move in hte opposite direction to the TWI (2marks)

i just wanna see a band 6 response...
haha and i dont noe this question.. :S

 

[corro]

its not band 6 but the twi is the value of the australian dollar versus the value of our closest trading partners. The TWI can go up if our trading partners currency depreciates, the exchange rate can go down and the TWI can go up if the $A depreciates at slower rate than that of our trading partners.

That would work i think, never seen a question like that before though.

 

[jky.]

it was in 2003 hsc if ure wondering..
question 21(c)

thanks for ure help

 

[ToO LaZy ^*]

ah..i remember this question.
thats easy.

 

[Shuter]

lol I just did this question about 20 minutes ago:

Here's my response (I checked it against the markers guidlines and notes and it look slike full marks).

"Trade Weighted Index factors in a basket of different currencies so it is the average of many exchange rates. One country may epxeriance poorer economic times causing the exchange rate to this country to rise whilst all the other nations actually perform strongly, hence the TWI would move in an opposite direction (down) compared to the exchange rate to this specific nation which moves up."

 

[ToO LaZy ^*]

my response:
an increase of the $A will decrease our international competitiveness causing our exports to decrease. this will deteriorate our TWI as we can now buy less imports with the same amount of exports. when the depreciation of the $A occurs, our international competitiveness will improve thus strengthening our TWI. hence the opposite effect.

 

[Agirlnameddani]

The WTI measures changes in $AUD relative to currencies of our major trading partners. The relative importance of trade occurring btn each country is taken into account. TWI is an absolute number and does not express the price of any single currency - hence the TWI and the exchange rate between say Aust and the US can be in opposite directions.

 

[Shuter]

my response:
an increase of the $A will decrease our international competitiveness causing our exports to decrease. this will deteriorate our TWI as we can now buy less imports with the same amount of exports. when the depreciation of the $A occurs, our international competitiveness will improve thus strengthening our TWI. hence the opposite effect.

Umm, aren't you talking about terms of trade, not trade weighted index?

 

[Monkuk]

yeah just cos it says trade doesnt mean it is about imports and exports.

 

[ToO LaZy ^*]

*Crtl Alt Delete Delete*...*shut down*

bah..got confused between the two.lol

 

[Shuter]

*Crtl Alt Delete Delete*...*shut down*

bah..got confused between the two.lol

And you want to do Commerce haha. Actually that's what I'm aiming for too, commerce at UNSW if I can make it (prob not), then probably Business at UTS or Commerce at U Syd as a 3rd choice.

Anyway, let's all bow down to my perfect response.

 

[ToO LaZy ^*]

And you want to do Commerce haha. Actually that's what I'm aiming for too, commerce at UNSW if I can make it (prob not), then probably Business at UTS or Commerce at U Syd as a 3rd choice.

Anyway, let's all bow down to my perfect response.

haha..yeah..actually, i don't quite get your response, could you explain it?

btw...why not bcom @syd for 2nd choice?

 

[username]

Trade weighted index does actually take into account the volumes of trade whereas the terms of trade takes into account the price. In order to work out the trade weighted index its the volume of exports over the volume of imports * 100. Whereas terms of trade is export price index over import price index *100

 

[Shuter]

Trade weighted index does actually take into account the volumes of trade whereas the terms of trade takes into account the price. In order to work out the trade weighted index its the volume of exports over the volume of imports * 100. Whereas terms of trade is export price index over import price index *100

No no no, the trade weighted index is:
"Trade-weighted index

An index of the average value of the $A compared with currencies of Australia's major trading partners. The weight given to each currency reflects the level of trade between Australia and the country concerned. Before the floating of the $A in 1983, the trade-weighted index of the $A was the basis for setting the exchange rate each day. The Reserve Bank of Australia publishes the index three times daily (9am, noon and 4pm) as a measure of the average movement of the $A against the currencies of Australia's trading partners. Most other countries publish an index of the average value of their currency. The most significant currencies in the Australian basket are the $US, yen and sterling. Abbrev. TWI. "

It is just an average of exchange rates (10 major currencies I believe).

Which parts of my response did you want me to clarify? All I'm basically saying is that because it's an average of many, one country can be moving in the opposite direction to the rest of them, but since the majority are moving the other way the TWI will still go the other way compared to the one individual exchange rate to that economy.


As for Commerce@Syd. I don't know it didn't sound as appealing really, course didn't look quite as good as what UNSW or UTS was offering, also UTS is conveinient to transport. I haven't really decided firmly on anything yet, but those are the main 3 I'm tossing up between.

 

[Agirlnameddani]

Username - I don't think working out the TWI is that simple.

I think what you have described is how the "weights" are worked out for each country included in the Index - i.e importance of the trade partner.