Assignment 1: Research Report Read the article titled ‘Australian dollar tumbles to ten-year low’ (Sydney Morning Herald, January 3, 2019), and answer the following questions. The article can be found on the subject’s Moodle site and at the following link: https://tinyurl.com/yc4oj9o5 The marking guide is uploaded on Moodle. Please refer to the marking guide for marking criteria and question weights. Marks will be deducted for copy pasting of graphs and tables from other sources. Word Limit: 2000 words. Submission Instructions: Submit your report by 9:30 am on Wednesday of Week 8 online Via Moodle. In addition to the online submission, hand in your hard copy of the assignment to the tutor in the Week 8 tutorial. Questions: (a) Briefly summarise the main issues discussed in this article. Using the Demand and Supply model of exchange rate determination explain how the AUD-USD exchange rate is determined by the market forces. (b) Using nominal exchange rate data from Reserve Bank of Australia and graphs (monthly data of last three years) analyse the movement in the AUD-USD exchange rate. What factors do you think contribute to the behaviour of the exchange rate? (c) Summarise the main driving factors behind the recent movement in AUD discussed in this article, including manufacturing PMIs, commodity prices and interest rates. Using the demand and supply framework discussed in part (a), explain how they impact the demand and/or supply in the AUD-USD market. (d) Assume that you are an Australian firm exporting software products to the United States. Explain the impact of this recent drop in the AUD on your business. Speaking more generally, how will the depreciation of AUD affect Australian economy? Provide a detailed discussion. (e) Suppose that the exchange rate stabilises at US 70C per AUD. What actions could the Reserve Bank of Australia take in order to bring the exchange rate to US 73C per AUD, and what side effects might this action have on the Australian economy?
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