StudentShare solutions
Triangle menu
  • Home
  • Subjects
  • Physics
  • AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision written by David Song

AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision written by David Song - Essay Example

Nobody downloaded yet

Extract of sample
AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision written by David Song

This entails the use of assumptions rather than facts, for deciding the monetary targets (Dickinson, 2002: 18). Furthermore, there is a strong relationship between inflation, interest rates and the exchange rate of any country. The same is highlighted and discussed in the following sections of this paper. Analysis: Exchange rate management plays a key role in the monetary policy framework of any country (Stone, 2009: 60). This is because the exchange rate of a country is one of the key determinants of its economic health, as it plays a key role in influencing the nation's international trade which is crucial for sustaining the economy. It is for this very reason the government keeps a watch on the exchange rate. Any increase in the currency rate has a direct impact on its exports, since the exports become costlier than before, while imports become cheaper and vice versa (Kirmani, Calika, 1994: 24). According to Takatoshi (1996: 93) the real exchange rate is one of the fundamental factors in defining the rate of exchange between the domestic goods and the international goods. Thus, any change in the exchange rate triggers an economy-wide impact on the international trade. The impact and effectiveness of manipulating the exchange rate by government, as a measure of promoting international trade, and its simultaneous impact on ensuring the long term macro-economic stability of the country have been documented by various researchers over the years (Wikham, 1985; Frankel, 1996). Impact of interest rates on exchange rate: The article states that “Although the Reserve Bank of Australia is widely expected to hold the benchmark interest rate at 4.75% in May, the central bank may strike a hawkish tone for future policy as price pressures intensify, and the statement accompanying the rate decision could push the AUD/USD to a fresh record high as currency traders expect to see higher borrowing costs over the coming months”. There is a strong relationship between interest rates of a country and its exchange rate. Any increase in interest rates attracts foreign investment and hence an increase in capital, thus ultimately leading to a substantial rise in the exchange rate (Miles, Scott, 2005: 534-5). Figure: Impact of rise in interest rates on AUD: In the above figure, the relationship between increase in interest rate and exchange rate is shown with regard to the U.S. dollar rate. It can be seen that as there is an increase in interest rate, the rate of return on investments also increases which leads to an increase in the appreciation of the Australian Dollar. There is a strong relationship between interest rates, inflation as well as the exchange rate of the country. The government, through various central bank policies, manipulates the interest rates, leading to a change in the inflation as well as exchange rates. When the interest rates are changed i.e. either increased or decreased, the inflation and currency value of the country too changes simultaneously. An increase in interest rates affords higher returns to the lenders, as compared to the currencies of other countries. Thus, such a hike in interest rates attracts greater foreign capital in the form of investments, ...Show more

Summary

The article titled “AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision” written by David Song. It discusses the impact of Australia’s monetary policies as a response to target inflation rates, on the Australian dollar and the exchange rate…
Author : wilsonbashirian
AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision written by David Song essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision written by David Song"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Macroeconomics
Article Summary The article titled “AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision” written by David Song, was posted on Saturday 30 April 2011. It discusses the impact of Australia’s monetary policies as a response to target inflation rates, on the Australian dollar and the exchange rate (Song, 2011).
7 pages (1750 words) Essay
Commonwealth bank of Australia
It is noteworthy that Commonwealth Bank has listed its stock in the Australian Securities Exchange. Presently Commonwealth Bank of Australia is one of the major players in the Australian financial markets owing to its large market coverage and asset base.
5 pages (1250 words) Essay
Decision to Charge Appropriate Interest Rate
The forecasted financial prospects of the business mainly describe the profitability, cash flow position and net worth of the business in the foreseeable future. Every investor wishes that his/her wealth should be maximized this effectively can be possible only when then his/her investment becomes more worthy, better profitability, consistent and increasing cash flows and strong net worth of the company are the determinants of a sound business prospects.
3 pages (750 words) Essay
How successful has the Australian Government and the Reserve Bank of Australia been in running the Australian economy over the l
Today, the Australian economy remains a model of well-planned economy for countries worldwide. The performance of Australian economy during the last two years is analytically presented below. Emphasis is given to the role of Australian government and the Reserve Bank of Australia (RBA) in the development of the country’s economy.
4 pages (1000 words) Essay
The Federal Reserve Bank
They jointly implement the monetary policy which is set by the Federal System. Every Federal Reserve banks governs the regulation of commercial banks in their district. Alexander Hamilton, the first secretary of treasury of United States, proposed the idea of instituting a National Bank in order to develop the country in terms of all the financial aspects.
5 pages (1250 words) Essay
Interest Rate Risk Assignment
The complex financial institution that a bank has become to encompass today, joining trading activities, with the more classical lending instruments, will most likely be impacted by all these subcategories of risks. If we look at the basic lending instruments, for example a credit, the bank will lose from an increase in the interest rate through a repricing risk.
3 pages (750 words) Essay
Interest rate options
Among the products that are most popular in the market are, (i) exchange interest rate options, (ii) embedded bond options, (iii) European bond options, (iv) interest rate caps, and (v) European swap options. Exchange interest rate options: A common example of this bond is, the Treasury Bond Futures Option.
2 pages (500 words) Essay
Interest Rate Options
According to the report the extended version of Black Scholes model, uses the rate of interest to calculate the payoffs of the options, and this model is called popularly, the Black’s Model. Among the products that are most popular in the market are, exchange interest rate options, embedded bond options, European bond options, interest rate caps.
4 pages (1000 words) Essay
Interest Rate Parity
Explain your steps. Based upon the principles of covered interest rate parity, the forward rate between the British Pound and the Yen at one year from now should adjust so that the return earned in Yen is equal to the return earned in British
1 pages (250 words) Essay
TASK/Assignment Critically analyse the following research question (plus include DIAGRAMS, GRAPHS and TABLES): Banks do not adjust their lending rates immediately when the Reserve Bank reduces the interest rate. This action suggests that commercial
nt component of the financial institutions of the world, being in the same category as insurance companies, investment banks, finance companies and other kinds of institutions that derive their profits and growth from the flow of money across various industries. Banks can be
8 pages (2000 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Click to create a comment
Contact Us