Question: exchange rates (4marks) (1 Viewer)

[jky.]

Hi. I've been doing parts of past papers.. and just wanna check this answer of mine, as im not really sure? or, if it could be worded better etc.

Question: Describe TWO methods the RBA could use to influence Aust's exchange rate.

My Answer:

the rba manipulate interest rates to influence (monetary policy) the exchange rates, by increasing interest rates, it will influence savings, and b/c there is a high level of interest rate, it will attract foriegn investors to invest in aust, therefore they would demand $AUD, and hence the exchange rate rises.
the other method is by buying and selling $AUD to reduce rapid fluctuations of the exchange rate in australia. where the RBA acts as a speculator. if the rba decides to buy $AUD, that will mean that they are demanding $AUD, and hence the exchange rate will rise. Vice versa

[4marks]

if i answered this in an exam, how many mark do u fink i would get?

 

[jky.]

hey,
thankss alot!
mmmz. i needa ask the advise line abt this vice versa thing too.. hahah but, i would rite it in an exam, just got lazy here

 

[Sarah168]

I think you have the basic idea but your expression needs alot of work. Yes, I realise this is Economics not English but the abilty to coherently convey your answer using correct economic terms is a marking outcome.
Ill try to re-phrase your ideas

a)The RBA could influence the Australian exchange rate by raising interest rates. This makes Australia more attractive to foreign lenders and investors, improving demand for the Australian dollar, thus causing an appreciation.

b)the RBA could undertake Direct Market Intervention also referred to as "dirtying the float". By buying Australian currency in the foreign exchange market, it is, in effect, lifting demand for the AUD, thus creating an appreciation. In the case of a rapid appreciation of the AUD the RBA would sell reserves of Australian dollars to cause the opposite effect - a depreciation. This method is, however, limited to the RBA's level of foreign reserves.

Even so, I think you might get 4 marks for your answer because they wouldnt be so nit-picky about economic terms and concepts as much in the S answers as in the extended response. Just be a little more careful with expression I think.


Edit: Also, are we allowed to simply state "Vice versa"? I know that markers particularly hate it when students say, "Etc etc etc" but does "vice versa" fall under the same catagory? Hmmm..might ask the advice line tomorrow.

 

[Rorix]

I think you'd get 2.

And 3 for Sarah.

 

[Sarah168]

They dont mark that hard. I wouldnt go into the exam praying for an easy marker but following the marking criteria (not your standards), it would be sufficient. if you had the time, some quick statistics might be good but really, a two section question like that only requires a straightforward answer. If it was an "Analyse" oor "evaluate" or "assess", it would be a different story.

 

[vegetable-mania]

short-answer questions are easy, i got 38/40 for my trials and syd girls dont have easy trials u know...

i'd be more worried on the essays - those questions catch out 'crammers' like me

 

[Rorix]

They dont mark that hard. I wouldnt go into the exam praying for an easy marker but following the marking criteria (not your standards), it would be sufficient. if you had the time, some quick statistics might be good but really, a two section question like that only requires a straightforward answer. If it was an "Analyse" oor "evaluate" or "assess", it would be a different story.

*shrug*
its your HSC

 

[aditya]

lol rorix... i think ur right as well... 2 and 3

because firstly, the whole of the first pointis abit dodgy-

keynes said that investment was inelastic to the level of interest rates.... i thik that would be worth putting in there, just to show that u know... (someboyd clarrify an conditions of this "theory" - like is it referring to domestic producers/investors only?)

and plus ur answers are waayy too long, u ned to compress those no doubt... long as in past the given quota of lines...

 

[ToO LaZy ^*]

Hi. I've been doing parts of past papers.. and just wanna check this answer of mine, as im not really sure? or, if it could be worded better etc.

Question: Describe TWO methods the RBA could use to influence Aust's exchange rate.

My Answer:

the rba manipulate interest rates to influence (monetary policy) the exchange rates, by increasing interest rates, it will influence savings, and b/c there is a high level of interest rate, it will attract foriegn investors to invest in aust, therefore they would demand $AUD, and hence the exchange rate rises.
the other method is by buying and selling $AUD to reduce rapid fluctuations of the exchange rate in australia. where the RBA acts as a speculator. if the rba decides to buy $AUD, that will mean that they are demanding $AUD, and hence the exchange rate will rise. Vice versa

[4marks]

if i answered this in an exam, how many mark do u fink i would get?

you need to use more specific terms such as cash rate, Domestic Market Operations, CGS. and for the second part include terms like 'dirtying' the float and why intervention is limited (due to limited foreign reserves)

2/4..

 

[username]

That first answer i would like to give 1, but it would get 2. The second one from sarah depending on the marker would get you definitely 3, and maybe 4.