An exchange rate is the price of one currency in terms of another currency. Australia's exchange rate can be compared to every country in the world, but the US dollar is used as a benchmark because it is the most widely used currency globally. The exchange rate is determined by the supply and demand of the currencies and fluctuates accordingly. Supply of the Australian dollar comes from Australians buying imports, sending money overseas, and investing abroad, while demand comes from purchases of Australian exports, money transfers into Australia, and foreign investment. When demand exceeds supply, the currency appreciates, and when supply exceeds demand, it depreciates.

1. Exchange Rates part 1
Basically, an exchange rate
is the price of one currency
in terms of another currency

2. Measurement
 Australia’s exchange rate can be
compared to every country in the world
 However, we in Australia use the US as
a benchmark
 This is because the USD is the mostly
widely used in the world.

3. Value
 Go to the internet and find the value of 1
Australian dollar in terms of
• USD
• Pound Sterling
• Euro
• Rand
• Singapore $
• What trends can you see when going about this?

4. Factors that affect the
exchange rate
 The exchange rate is not fixed. It is
determined by supply and demand.
• What does this mean???
 This is known as a flexible or floating
exchange rate

5. Supply for the AUD
 Comes from Australians who
• Buy imports
• Send income and currency out of Australia
• Invest overseas
Why are these supply factors for the AUD?

6. Demand for the AUD
 Buy Australian exports
 Transfers money into Australia
 Invests into Australia
Why are these all demand factors for the
AUD?

7. What happens when demand
and supply move
 Demand exceeds supply then the dollar
appreciates
 If supply exceeds demand then the dollar
goes down or depreciates
 FOR EXAMPLE
 If demand for exports increases this will
lift the dollar.

8. Other factors affecting the
exchange rate
 Economic growth of the domestic and
trading partner
 Inflation between the domestic and
trading partner country
 Interest rates between the domestic and
trading partner country

9. Questions
 Identify and explain the different sources
of supply and demand for the Australian
dollar
 Explain how interest rates and inflation
can influence the exchange rate