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TFIN301 International Business Finance

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TFIN301 International Business Finance

This assignment contains seven questions, 20% of full mark (or equivalent to 20 marks). This  assignment should be submitted by turnitin till 19/05/2019.

Given the supply and demand curves of the exchange rate between US dollar and Australian Dollar,

S (usd/aud), as.

Qs= 5 + 0.2Pt

QD= 10-0.6Pt

where Qs is the supplied quantity of foreign currency, QD is the demanded quantity of foreign  currency, and Pt 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 t = 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

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)

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