Skills revision

• In order to counter a rapid appreciation of the A$, the RBA will decrease the cash rate
• During an appreciation, the A$ value of foreign debt decreases. This is known as the valuation effect.
• Australian consumers have decreased purchasing power during a depreciation of the A$
• Given recent economic experiences, the most significant influence on the value of the exchange rate is how financial markets react to changes in the balance of payments, not the actual balance of payments figures themselves.
• In order to counter a rapid depreciation of the A$, the RBA will increase the cash rate.
• When illustrating exchange rate movements, increased demand is represented by a shift in the demand curve to the right. Such a movement would cause a appreciation.
• An appreciation is caused by an increase in demand for A$, and a decrease in supply for A$.
• A depreciation is caused by a decrease in demand for A$, and an increase in supply for A$.
• The RBA will sell Australian dollars in the foreign exchange market in order to increase the supply of Australian dollars and cause a depreciation.
• The RBA will buy Australian dollars in the foreign exchange market in order to increase the demand for Australia dollars and cause an appreciation.